Insurance risk in PNG

Business

By GYNNIE KERO
THE growing inability of insurers to readily raise offshore payments to their reinsurers is a major risk for Papua New Guinea’s financial stability, an Australian professor says.
Dr Allan Manning (pictured) said every insurer in the country should purchase reinsurance.
“This means that if there is a major catastrophe, the insurers and their customers are protected and foreign currency comes into the country to help in the rebuilding process,” he said.
Unless a reinsurer has no financial and management challenges, the ability for insurers to cede their risk to quality-rated reinsurance security is imperative for the financial security of PNG’s insurers.
Manning said insurance was a foundation to economic development and stability in any country including PNG.
He has a 45-year experience in insurance claims, including more than three years in PNG.
He is the founder of the insurance consultancy firm LMI Group.
He told The National in Port Moresby recently: “Insurance does play a proactive role in the economic stability of communities and villages in PNG via various means of protection.
“This would help the most vulnerable and grassroots people to be better off, especially considering the global changes in weather patterns and other environmental factors.
“People who invest in a major capital development and those that provide finance to the developers/entrepreneurs need the protection of an honest reliable insurance industry that has the funds to pay claims promptly.”
He said although issues such as money laundering must be monitored by governments and the insurance industry itself, he did not believe general insurance was a high-risk for money laundering.
“As time, resources and funds to monitor such things in PNG are limited. Then the resources may well be spent in other areas and developing parliamentary regulations which ensure that the insurers that operate in the country are financially secure and that provide greater levels of consumer protection,” he said.
“I think that PNG would benefit from an Act which provides a framework around the issue and maintenance of insurance contracts as well as greater regulation of the insurance brokers and their qualifications and business practices.”
He said insurance policies issued in foreign currencies such as in US dollars or Australian dollars were a concern.
“I consider it to be an unnecessary burden on the current financial system. Apart from some policies with global implications such as marine insurance, policies insuring goods and property which are in PNG, should, in an ideal world, be issued in PNG currency,” he said.
“There is an obvious shortfall in foreign currency which is adversely impacting PNG’s economy and negatively impacting many businesses.
“Issuing insurance policies with limits and sums insured in foreign currency creates an unnecessary drain on an already stressed forex market.
“Foreign currency policies also create additional risks for insurers in Papua New Guinea as they carry the exchange variation risk and this is often very hard to quantify and underwrite.
“Policies should be issued in PNG Kina and premiums paid in PNG Kina as much as possible. This would support economic activity, not create a burden as is currently the case.
“The financial security of their reinsurer(s) is critical to any insurance company. It is not a matter of making PNG more attractive to other insurers from overseas.
“The protective framework of the current admitted market in Papua New Guinea is already working and is necessary to protect the industry while it is still in its infancy and formative years.
“Ensuring that all insurers, brokers and insured clients all place their insurances within the admitted market framework is a fundamental necessity.
“The security and tenure of those insurers, brokers and loss adjusters currently in the PNG insurance industry should be the first point of focus for the current Government and regulator(s).
“Bringing in other external insurers will only reduce the viability of those already in the market here, not to mention, job and training opportunities for PNG citizens.”