Manning explains insurance

THE National’s Assistant News Editor GYNNIE KERO discussed the insurance industry in the country with Australian professor Dr Allan Manning who has 45 years’ experience in insurance claims. He is the founder of insurance consultancy firm LMI Group. Manning used to live and work in PNG and was the insurance loss adjuster which managed the Bougainville Copper insurance claim.  

KERO: What is your opinion on PNG’s insurance industry?
MANNING: The insurance industry in PNG has many unique challenges and the diversity and complexity of risks in this environment enable people in the PNG insurance industry to develop skills and knowledge that one may not develop in a lifetime in other more developed countries. This has even gone further with the massive amount of development that has of late and is obviously continuing.
KERO: Is the industry properly regulated?
MANNING: The insurance industry has a relatively robust governance framework although I get a sense that there is not a uniform approach to how the rules are applied.  I would like to see greater contract certainty for consumer protection. This is not unique to PNG and is an issue that major insurance markets like the UK are working on. Insurance is a foundation piece to economic development and stability in any country. People who invest in a major capital development and those that provide finance need the protection of a honest reliable insurance industry that has the funds to pay claims promptly. I understand that PNG’s own reinsurer has its own financial and management challenges and until they are sorted out, the ability for insurers to cede their risk to quality rated reinsurance security is imperative for the financial security of PNG’s insurers. There has also been a difficult time of late with the position of Insurance Commissioner. This should be addressed as it is a very important position.
KERO: I understand that by law, there should only be one re-insurer in the country, which is Pacific Re Ltd, while businesses and those investigating potential in PNG have 15 insurers to choose from. A review of Pacific and its financial performance immediately raises questions on financial stability, governance and management practices. It seemed that Pacific Re recently released its financial statements for 2014 and continues operation into 2016. Shouldn’t that be a concern for insurers?
MANNING: The financial security of their reinsurer(s) is critical to any insurance company.  Whether this company should or should not be operating, I am not in a position to offer a meaningful comment on that. This rightly is for their board of management, the insurance regulator and the Government.  Having said that, it is important that all those parties and the insurers that rely on this reinsurer or any for that matter are adequately funded, and well managed.
KERO: What is your suggestion on how the Insurance Commission in PNG should make the industry more attractive to insurers from overseas?
MANNING: It is not a matter of making PNG more attractive to other insurers from overseas.  The protective framework of the current Admitted Market in PNG 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).  Those who are currently in the industry now are the best front-liners to develop the skills and educate Papua New Guineans.  There does not appear to be a shortage of capacity and appetite in the market here.  Bringing in other external insurers will only reduce the viability of those already in the market here.
KERO: Explain a bit about Bougainville Copper insurance claim and what lessons can be learnt from that.
MANNING: At the time, this was one of the largest single claims in the world. The question was whether the disruption to the mine was caused by an insured peril such as riot or was due to politic unrest and therefore like war damage not insured. The claim was ultimately settled by a compromise settlement of just over 10 per cent of the potential claim. What has occurred since shows that this was a very fair settlement by insurers? From my own point of view, I found Bougainville a beautiful part of the country and was saddened to see the misery and hurt that the event has caused to more than one generation. Here I am not only talking about economically but in health care and education, the very foundation of a good lifestyle. The lessons are that conflict really solves nothing. If both sides try and use violence and take an eye for an eye approach everyone ends up blind. If there is a genuine grievance meaningful and open discussion is the only way forward and that both sides need to be prepared to compromise. On the other side of the coin, if people get greedy or continue to put in frivolous/ill-founded claims, they risk the project being stopped or abandoned and then everyone is the loser.
KERO: Is it a must for individuals, companies to insure their homes, properties, vehicles?
MANNING: Insurance is not compulsory – except when it comes to compulsory third party insurance and workers compensation insurance. Having said this, insuring your home business and car is the smart thing to do. If the property is lost damaged or destroyed, the assets will be repaired or replaced if you have insurance. If not, you lose the asset. And if you have a loan to purchase the home, business or car, you are left with the debt. This is not a good place to be and is why insurance is so important.
KERO: How about life insurance, almost all average Papua New Guineans are not insured.
MANNING: Life insurance is particularly important if the principal income earner has debt. It is much better for the family if should the worst ever happen. Let us say the father were to die. Life insurance could pay off the debts, educate the children and perhaps provide some funds to live off while they work out how to move forward. It is not something for everyone. But there is a place for it to protect the assets and life style of the family.
KERO: Where should an individual go to if he/she wants to be insured?
MANNING: They can go directly to some insurance companies. But if it is complex, they may go to an insurance broker or adviser who can analyse their needs and know what covers are available and tailor a programme right for them. Insurance is complex and expert advice either from a reputable insurer or adviser is recommended.
KERO: Does he/she have to pay yearly/monthly fees for life insurance?
MANNING: There are different ways to pay life or general insurance premiums. Most times it is a fee paid in advance of each year’s cover.
KERO: Are the insurance rates same for life, building, fire, vehicle?
MANNING: No the rates on life insurance or even different buildings, motor vehicles are not the same. The insurer works out the price to charge, called a premium based on a number of factors. In life insurance it depends on your age, and risk factors such as whether you smoke, your general health and the like. With buildings it is on the construction, the occupation of the building, claims history. Different rating factors apply to different types of insurance.
KERO: When can insurance be claimed for life, property, vehicle, fire?
MANNING: This depends on the coverage that you purchase. With life insurance, the most common ones are whole-of-life or term insurance. With both of these, the sum insured is paid out on the death of the named insured. With vehicle insurance, again there are several types. But with comprehensive, a rule of thumb it is when the vehicle is damaged or stolen. With property insurance, the trigger to make a claim is when damage occurs to the property caused by one of the insured events such as fire, or storm.
KERO: How is insurance calculated?
MANNING: This can have two answers. If you are talking about setting the sum insured, that is how much to insure for, then the following general rules apply: a) Life insurance – enough cover to pay off your debts and ensure that any dependents have enough to educate, house and feed them until they can fend for themselves. b) Vehicle insurance – insure for enough to buy the same sort of car in the same sort of condition. c) Building insurance – enough to rebuild the property to an as new condition plus the cost of removing the rubbish left by the fire.
KERO: Any final word?
MANNING: To allow you to build your wealth you need to protect what you have. Insurance is the best method to protect your financial future.