The renminbi has now reached its lowest point since December 2008, dropping to 6.8729 against the US dollar. The currency has not dipped so low since its appreciation after being unpegged from the dollar in 2010.
The value of the renminbi is determined by a ‘managed floating’ exchange rate system, thus leaving it open to market forces.
US President-elect, Donald Trump, has put a spotlight on the renminbi by labelling China as a currency manipulator
This change comes at a time when US President-elect, Donald Trump, has put a spotlight on the renminbi by labelling China as a currency manipulator. Trump made accusations throughout his campaign that China was manipulating its currency downwards in order to increase the competitiveness of its exports.
He claimed at the time: “China goes down to seven percent [growth], and then what they do is devalue their currency and they take more of our business and they start to go up again.” Contrary to this accusation, the People’s Bank of China (PBoC) has in fact made efforts to prop up the currency in recent years.
Nonetheless, the currency has seen ongoing downward pressure due to capital flows as private investors continue to send their capital abroad. In response, PBoC has intervened to support the currency through open market operations, reportedly depleting its foreign reserves by $210bn this year.
A rally on the dollar is another large part of the explanation for this dip in the renminbi’s value. Upwards pressure on the dollar has arisen due to expectations that the Fed will raise interest rates in December. This push was then further intensified following Trump’s election victory, due to the predicted implications of his economic plans.
If Trump follows through with his economic promises, a fiscal stimulus is likely to result in inflation and a substantial rise in rates by the Fed.
The dollar hike has seen a similar effect on other emerging market currencies as well: the renminbi has devalued relatively less than others, and is down only 1.2 percent against the dollar. To compare, the Malaysian ringgit is down by four percent, the Korean won is down by 3.3 percent, and the Mexican peso is down by nine percent. Currency intervention by the Chinese may therefore explain why the renminbi was hit relatively gently by this surge in the dollar.
Warren Buffett’s holding company, Berkshire Hathaway, has disclosed new investments of over $1.2bn in four US airlines. The move has surprised onlookers after Buffet’s previous comments disparaging investments in the sector.
In 1989, Buffett’s investment in USAir Group suffered losses, and he has since seemed set against any further investments in the sector. In an annual shareholder meeting in May 2013, Buffett said the sector has “been a death trap for investors”. Further to this, when previously questioned on whether Berkshire Hathaway would consider buying airlines, Buffett stated: “Investors have poured their money into airlines and airline manufacturers for 100 years with terrible results.”
US airlines saw record revenue in 2015, when fuel costs were low, but this year’s rebound in oil prices has been a blow to profits
In a regulatory filing, Berkshire Hathaway disclosed that from September 30, it acquired new stakes in three US airline companies. The largest new stake was in American Airlines, worth $797m, with smaller shares of $249.3m in Delta and $249.3m in United Continental. Buffett has also confirmed a further stake in Southwest Airlines, according to CNBC, which was reportedly acquired later than the others and so was not included in the regulatory filing.
The announcement prompted a rise in the airlines’ share values in after-hours trading. American Airlines’ shares were up by more than three percent, Delta Airlines and Southwest Airlines saw increases of more than two percent, and United Airlines witnessed a 1.7 percent increase in share value.
While Buffett has not explained what caused his change of heart, US airline stocks have recently gained ground with investors. This is likely because several carriers have suggested that a prolonged spell of low fares is likely to ease soon, which should make way for profits in the near future.
The sector’s sensitivity to fuel prices has also been a central factor in determining profits over recent years. US airlines saw record revenue in 2015, when fuel costs were low, but this year’s rebound in oil prices has been a blow to profits. This setback, however, has in turn made share prices cheaper.
Furthermore, the airline sector is in a better position after having largely avoided price wars and excessive capacity growth since emerging from the 2008 economic crisis.
It is possible fund managers Todd Combs and Ted Weschler at Berkshire Hathaway have been behind the unprecedented decision; the pair share investment responsibilities for Berkshire Hathaway and this would not be the first time they have widened the group’s range of investments. In March this year, the group invested a $1bn stake in Apple, moving into the tech sector after Buffett had reportedly eschewed it in the past.
As the financial sector races to respond to Donald Trump’s presidential victory, Goldman Sachs economists Sven Jari Stehn and Alec Phillips have presented damning predictions for the future of the US should the president-elect follow through with his economic plans. The report presents a prognosis of immediate gain followed by future pain.
Trump’s economic team has proposed a huge fiscal stimulus package of infrastructure spending and tax cuts, presenting a likely short-term boost in GDP alongside potential long-term supply side benefits. His proposals also include protectionist policies and a squeeze of the immigrant labour force, which could result in both inflation and dampened economic growth.
Modelling the potential adverse effects of Trump’s policies opens up the huge question of how literally his campaign promises should be interpreted
The Goldman Sachs economists look into how an ‘adverse scenario’ could play out. This is a prediction based on what could occur if Trump fully implements his proposed plans of financial stimulus and trade and immigration restrictions, and if the Fed responds hawkishly as expected.
The prediction goes as follows: growth would see a short-term boost as real GDP reacts to the expansionary fiscal policies, which would result in the economy seeing growth higher than the baseline rate. Growth and unemployment would then falter in 2018 and 2019, without a corresponding drop in inflation. At this point, the Fed would use tight monetary policy to tackle inflation, which further dampens growth and unemployment. The result will be that the US will face the simultaneous blow of unemployment and inflation.
Modelling the potential adverse effects of Trump’s policies opens up the huge question of how literally his campaign promises should be interpreted.
The Goldman Sachs economists also model a ‘benign’ scenario whereby Trump only follows through on his fiscal proposals. In this case, the boost of a fiscal stimulus is felt briefly before dying down. This scenario largely avoids the adverse effects to future unemployment and growth due to restrictions on trade and immigration.
While protectionism and immigration restrictions formed much of Trump’s campaign rhetoric, many voices – including the Goldman Sachs analysis – are predicting Trump will hold back on some of these promises. According to the Financial Times, Ryoji Musha, President of Musha Research, commented: “Surely now that the election is over he will do away with the rhetoric he used to attract voters and move to formulate a consistent and realisable system of policies.”
First introduced in the 1970s, the concept of microfinance was created as a way of helping individuals to lift themselves out of poverty. For many living in poor communities in developing countries, access to capital can deliver a much-needed boost to their standard of living, an opportunity to provide an education for their children, or act as the impetus necessary to start a new business.
Microfinance Institutions (MFIs) lend money to those who are not able to take out loans from traditional banks. At the time when of its introduction, the concept was celebrated as the desperately needed key to solving poverty in countries around the world, and was quickly thrust into the international spotlight.
Microfinance all started with the Bangladeshi economist Dr Muhammad Yunus, who became the first and biggest name in the novel but rapidly growing industry. One day in 1976, during a visit to the village of Jobra, Yunus met a stool maker who needed just 22 cents to bypass her usurious lenders. Yunus took it upon himself to give her his first micro-loan for the amount of $27. He went back to Jobra the very next day to hand out more micro-loans, thus forming the roots of this alternative lending model.
For many living in poor communities in developing countries, access to capital can deliver a much-needed boost to their standard of living
Microfinance became an official concept in 1983 when Yunus founded Grameen Bank as a vehicle to provide micro-loans. The organisation’s expansion was rapid; by 2005 Grameen Bank had 2,422 branches with 7.06 million customers in over 78,000 villages, 97 percent of which were women. In 2006, both Yunus and Grameen Bank were awarded the Nobel Peace Prize for their work in developing microfinance as an innovative financial system.
In the years since, however, criticism from various outlets has built up. Indeed, many now doubt the effectiveness of microfinance in aiding poverty reduction, while some even go so far as to say the opposite is true for the very poorest members of a community.
Helping hand
Many people living in developing nations are trapped in an endless cycle of poverty; living on very little each day and deprived of regular work and access to vital services. In the absence of financial history, collateral, steady employment or indeed any form of repayment assurance, banks are generally unwilling to provide would-be customers with capital. Yet without access to financial services, there is little hope of escaping. Microfinance aims to bridge this gap.
“I’ve been at the coalface of microfinance for 45 years, my whole working life. I have seen the transformative impact it has on many people’s lives”, said Rupert Scofield, Founder and CEO of Finca, an MFI that was established in 1985.
Nowadays, MFIs operate across the globe, positively impacting the economies of dozens of countries (see Fig 1). “Some larger organisations work closely with the World Bank, while other smaller groups operate in different nations. Most were formed with the simple goal of improving lives with funding from donations, grants and other forms of generosity”, Scofield explained.
Aside from standard loans that usually start at $1,000 and can reach up to around $20,000, group loans are also available for those people at the very bottom of the pyramid. Known as ‘village banks’, each participant within a group acts as a guarantor for one another’s loans.
“A lot of people like the group guarantee model, as they don’t have to go through a big process of registering and collateral and so forth”, Scofield told World Finance. “And it’s particularly helpful for low income individuals – it’s a very popular vehicle for them to get credit.
“Many people use the money to start up their first businesses, often mentored by experienced entrepreneurs in their local communities. Or they use the money to expand their current businesses, adding new products, opening new stores, or launching new enterprises in other sectors. This grassroots economic development not only generates income for the business owners, it creates additional jobs for other members of the community as well.”
Getting a bad rap
Despite various aspects pointing towards the good that can be achieved from the product, the reality of microfinance is incredibly complex. In fact, many argue there is a distinct lack of evidence to show microfinance actually does help to reduce poverty. Over the years, a series of controversial events have given microfinance a reputation for unscrupulousness.
The backlash began in 2007 when Mexican microfinance bank Banco Compartamos transformed itself from being a non-profit organisation into a profit-making finance institution. After raising over $400,000 in its initial public offering (IPO), just like any other public company, Banco Compartamos became ultimately answerable to its shareholders and the bottom line.
Yunus was one of the first to speak out against Banco Compartamos’s IPO, arguing that turning the company into a for-profit organisation went against the core objective of microfinance – namely, to reduce poverty. Compartamos, on the other hand, contended that, by becoming profitable, it could further extend its reach to poor communities in Mexico.
The reputation of microfinance was further damaged by the exploits of SKS Microfinance (since renamed Bharat Financial Inclusion): India’s biggest MFI had expanded rapidly under the leadership of its founder and former McKinsey consultant, Vikram Akula, reaching some 5.8 million customers and taking in billions of dollars in revenue (see Fig 2). In 2010, it became the first institution in the country to offer its shares through an IPO. The fact it raised over $350m was praised by some as an indication of the system’s self-sufficiency – others, however, reacted with outrage, noting how millions had gone directly into Akula’s pocket. Incensed at the idea of taking from the poor to give to the rich, local entities and politicians began convincing SKS’ clients to stop paying back their loans.
A new trend thus emerged in the world of microfinance, which saw groups using the platform not just to help others, but to also turn a profit. The likes of Barclays, CitiGroup and General Electric initiated microfinance projects that gained from lending small amounts of capital to so-called ‘unbankables’.
“Back in 1985, when my partner and I started Finca, microfinance and loaning money to low-income people was a novelty. Now it seems like everyone is getting into microfinance”, said Scofield. “Not only commercial banks, but also large consumer lenders, retail stores, telecoms, utilities – anyone, in short, who has large numbers of low-income customers.”
Even Yunus himself, the father of microfinance, has not been shielded from criticism. At the tail end of 2010, the Bangladeshi Government launched a high-level investigation into Grameen Bank. In addition to accusing Yunus of evading taxes, Sheikh Hasina, the Bangladeshi prime minister at the time, condemned MFIs for “sucking blood from the poor in the name of poverty alleviation”.
Stories also began to proliferate about the aggressive techniques used to pressure borrowers into making repayments. The worst case reported at the time came from the Andhra Pradesh state of India: according to local media reports and the Associated Press, in late 2010 over 200 over-indebted residents had committed suicide. Also emerging was evidence of SKS verbally and physically harassing customers, which included various forms of public humiliation.
Blaming MFIs for the upsurge in suicide rates, the state implemented stringent new microfinance laws, which included compulsory lender registration, weekly repayments for borrowers and limiting the sum of interest payments so they could no longer exceed the loan itself.
Vikram Akula’s MFI, SKS Microfinance, came under fire after it profited significantly from an IPO
Granting financial access
In the early days of microfinance, the industry’s focus rested primarily on micro lending – which was a large part of the problem. However, the system has since evolved.
“Microfinance is more than micro lending, and in fact other financial services are probably more important than the lending part. Asset building, micro insurance, savings – those are becoming more prominent now, and I think that’s a welcome change”, said Bhagwan Chowdhry, Professor of Finance at UCLA. “The whole cycle of borrowing comes much later. First you need to build financial history; you need to show continuity of spending patterns, earning patterns, and then the micro lending comes in.”
In terms of significantly reducing poverty, as its critics have long argued, microfinance is not actually the answer – or the sole answer, at least. “We tend to get carried away; we are always looking for silver bullets for the answer to poverty. There is no one answer to poverty, but I think these [microfinance products] are steps”, Chowdhry told World Finance. Without access to financial services, it is far more difficult to escape poverty – much more is required in terms of opportunities, jobs and skills. “So microfinance – or in general, I like to think about it as financial services – are steps to facilitate that”, he added.
In 2007, Kenya’s biggest mobile operator, Safaricom, introduced M-PESA, a new platform for making payments and transfers via mobile phones. At no extra cost or monthly fee, users could transfer balances and deposit money through their mobiles, marking a dramatic improvement to the access and delivery of microfinance services to customers, even in the country’s most remote areas. This was a significant departure from the work of telecoms firms that charged inordinate fees to customers who wished to move or deposit money via their mobile phone – a norm for many countries in the developing world. As testament to the impact M-PESA has had in Kenya, after just three years, the number of users rose to a whopping 10 million.
Technology now plays a pivotal role in developing microfinance as a tool for providing financial access to those living below the poverty line. Through the use of smartphones, MFIs can reach far more people, which is of particular importance when the potential clients are located in hard-to-reach areas.
Prior to recent technological developments, large sections of a population were grouped together in the over-simplified category of ‘unbankable’. Chowdhry said: “Now that we are able to collect data on people, because they are using mobile phones or other electronic technology, in some sense they become more visible to us – suddenly these people become ‘bankable’.” Technology has also reduced the cost of transactions, which in turn may allow more competition in the field, and so better offerings for customers. “I am very optimistic that those developments will actually make microfinance more of a success in the coming years than it has been in the past”, said Chowdhry.
100 million
Active investors in the microfinance sector in 2014
29%
Growth of the Indian microfinance sector in Q1 2016
Fighting the naysayers
Another famous point of contention is the often-high interest rates MFIs charge. For example, shortly after its IPO, Banco Compartamos came under fire for its shocking APR of 75 to 100 percent. In a 2007 interview with Bloomberg, Yunus said of the company: “Microcredit was created to fight the money lender, not to become the money lender.”
To many, charging such a high rate of interest to those already contending with extreme poverty would seem nonsensical. Even borrowers with steady incomes would be hard pressed to make such repayments, let alone the type of clientele MFIs generally deal with. Naturally, lenders have fought back against this objection, arguing high administration costs – particularly as most customers are based in remote area – justify such high rates.
When asked about this point in particular, Scofield said: “The financial cost globally for us is about 10 percent of the cost of our money, and that’s a blended rate of savings and external debt. Our administrative costs could be as much as another 20 to 25 percent, because our loans are small and they are also dealing with remote groups, and it’s expensive to get out and service them.
“Interest rate caps always happen inevitably, then the MFIs can’t afford to make the small loans in the remote areas so they just withdraw from the markets where they are most needed.”
Chowdhry too sees a problem with interest caps, saying they “impede the development of the competitive market – it gets very messy once you reach that stage”.
The other frequent criticism facing microfinance refers to the severe improbability of there being a Bill Gates or Mark Zuckerberg in every village in which MFIs operate. Unsurprisingly, very few customers are able to take a small amount of capital and turn it into a thriving business, while even fewer can also create new jobs within a community in the process.
In truth, most people living in severe poverty rely on so-called entrepreneurship to earn a wage. Numerous people in low-income communities cannot hold regular jobs for various reasons – one obvious example being that of child rearing – and so, when only intermittent hours are available for working, flexibility is essential.
“I hesitate to use the word ‘entrepreneurship’, because it’s romanticised and we talk about it as if it’s also a silver bullet. At the very poor level, entrepreneurship is a necessity, rather than an answer”, said Chowdhry. “I think a very poor person would rather have the security of a job and security of income.”
For a large section of a population that works in the unorganised sector – meaning those who do not have consistent, long-term jobs – entrepreneurship is just one way to fill the gap. “If you can do something on the side – start a food stall, or make something and sell it – that’s where you need capital, and that’s where I think microfinance can help”, Chowdhry added.
Very few customers are able to take such a small amount of capital and turn it into a thriving business
Stepping stones
As with so many ventures that started out with good intentions, over time the core objective of microfinance has been warped by the reality of life. The notion of microfinance is wonderful; it represents a tool that can enable economic empowerment. It represents the missing link that could help the millions of people around the world who are living in dire poverty.
Unfortunately, despite high hopes, the results of microfinance have been somewhat disappointing, particularly in light of organisations using it to extort money from the poor under a mask of philanthropy. There is also a note of corporate irresponsibility hovering over reports of over-indebted individuals who reached such desperation regarding their financial woes they felt they had no choice but to take their own lives.
But despite such a chequered history, there is still something to say for microfinance. Every person on this planet is entitled to basic goods and services, and as a prerequisite to those things, they are entitled to financial inclusion as well. That many banks will not and cannot help the poorest segments of society is no excuse to deny financial inclusion to millions. As Scofield said: “There are still many places around the world that are starved of capital.” MFIs can surely step in to fill this crucial role.
“It simply makes sense that once these communities are provided with the resources they need to expand their businesses at an affordable level, they will do so”, Scofield continued. And to some extent, he’s right. However, microfinance should not be considered an absolute solution to alleviating poverty – it is simply one integer in a highly complex equation.
Moreover, microfinance must not solely focus on micro lending. If it is to truly help improve living standards, it must offer other vital products, such as insurance and savings. Namely, it must provide vital financial access to those that cannot obtain it otherwise.
The international community and individual governments are unremittingly charged with the responsibility of reducing poverty, but such a feat can only be achieved through sound, sustainable polices. Job creation, education, healthcare form the thrust of this vital mission; microfinance is simply one stepping stone of many. But at least it exists, supporting communities until the rest of the path is formed.
The world of insurance is closely linked to the condition of the economy, technological advances and the environment. In recent years, we have lived in a world with slower growth, with low interest rates, lower productivity within the labour force, increased volatility in capital markets, and unprecedented technological development. Some economies have recovered slightly, but it is unlikely we will return to the growth prospects of previous years, especially if we take into account the lower growth rate for China, which, at 7.7 percent, is at its weakest in over two decades.
The picture is no different in Peru, and recent years have also seen a reduction in GDP growth rate. A slight recovery is expected, but again, we do not foresee reaching levels of six percent growth. As insurance is connected with economic growth, this situation has a direct impact on our industry. Greater investment flows generate a greater demand for labour, which leads to an increase in wages and strengthens the expansion of the middle class, creating new opportunities for business.
The change of government in Peru has injected new optimism and confidence among investors. By reactivating infrastructure and mining projects, generating appropriate investments in the fields of health and education, and implementing the state’s strategic plan to address fiscal imbalances in the face of natural disasters (earthquakes, the El Niño phenomenon, rain and flooding), Peru presents a fresh context and opens up new opportunities in the realm of business insurance.
One of the major concerns of insurers is climate change, which leads to a higher frequency of natural disasters
Projects being reactivated include: the Southern Gas Pipeline, Metro Line Two in Lima, water works and sanitation programmes, the expansion of Jorge Chávez Airport, the construction of Chincheros Airport in Cusco, the missing sections of the Sierra highway, and the contract award for the Metro Line Three. These are important for the revival of growth in the insurance market.
This scenario presents a very important challenge for Rimac Seguros as insurance market leaders in Peru. Throughout our 120 years of business, we have been committed to Peru, our clients, and our employees. We have also been immersed in a programme of continuous transformation, in order to address the changes that are occurring in the country and will continue to occur in the insurance market. This flexibility enables Rimac to maintain its leadership in a profitable manner.
New technologies
Advances in technology create a very significant challenge for the insurance industry across the value chain, with more informed customers seeking simplicity, accessibility and more sophisticated products to meet their needs. As such, investment in process improvement, technology and innovation is key.
Rimac has continually invested in these fields, focusing on new trends and forces that generate the most important developments in the insurance industry. One such example is the use of big data and data analytics to find patterns in structured and unstructured data applied to prospecting processes, sales, risk assessment and fraud detection processes. We are also present on social networks, in order to obtain information on the behaviour of consumers and set up product models for related groups. We make great use of the web, smartphones and apps that allow us to better reach our customers in all stages of prospecting, sales, care, use and relationships.
An example of these changes can be seen in the development of the first engineering management app for risk inspection: Risk Inspect. This is a software programme that interacts online and in real time with the company. The software evaluates various risks, such as fire, theft, mechanical breakdown and natural disasters, through detailed questionnaires. This tool allows us to offer finer and more appropriate underwriting to meet our customers’ needs, since the data we obtain automatically includes GPS coordinates, building materials, and details of the protections used by companies against fire, among other risks.
This initiative began at the end of 2013, when Rimac and IBM signed a strategic alliance for the digital transformation of our company, with the aim of maintaining leadership in the Peruvian insurance market. During 2014, Apple and IBM announced a global strategic alliance to develop mobile business applications, and approached us to introduce this tool. The interesting thing is we managed to identify the specific needs of Peru’s insurance market, and thus Risk Inspect was born – the first mobile business application in Latin America’s insurance industry that is provided by two global partners.
This application positions Rimac as the leader in innovation and technology in the general insurance market. In this vein, it is also important to highlight Rimac’s annual inspection programme, which has the largest coverage in the country, comprising more than 1,200 business customers nationwide. In addition to this, last year we incorporated a prevention property risks website, which addresses issues of interest to our customers and offers a variety of services, ranging from online courses to train staff and customers, to fire control systems tests in accordance with NFPA 25. This platform has allowed us to strengthen our leadership in prevention. Such developments demonstrate we are true pioneers in technological advancement and innovation within Peru’s insurance industry.
Climate change
One of the major concerns of insurers is climate change, which leads to a higher frequency of natural disasters. As we have seen across the globe, these are recurring in shorter timeframes and, in many cases, more severely. In the case of Peru, seismic risk has to be considered, due to the country’s location in the Pacific Ring of Fire, and considering there has been no seismic activity for many years.
In the case of Peru, seismic risk has to be considered, due to the country’s location in the Pacific Ring of Fire
This obliges us to follow more sophisticated processes of risk assessment and reinsurance purchasing and, above all, to implement prevention and loss mitigation programmes together with our customers, so as to reduce their vulnerability to natural events.
Being market leaders enables us to make best use of both structured and unstructured information, including flood zone maps and topographic maps, either of the country or of places where important events (such as landslides due to rain or landfalls caused by earthquakes) have occurred. We also utilise innovative models that are developed for coastal flood-prone areas in the event of a tsunami or tidal waves, as well as other types of information. This use of vital data is coupled with our leading expertise in the field.
All these factors combined allow us to create analysis models that differentiate us significantly in the market in terms of quality of risk assessment. We therefore remain competitive by maintaining adequate prices, while also offering a clearly compartmentalised offer according to the quality of risk in each individual case.
Reputation and renown
This year, Rimac celebrates 120 years of working in Peru. With around 4,000 employees, it is now recognised as one of the most trusted companies in the country. Throughout the years, Rimac has maintained its position as a key player, having thrived even through the various changes that have shaped the country, including social, economic and political reforms.
The company has achieved several milestones over the years: it was the first company to be listed on the Lima Stock Exchange in 1898; the first to underwrite car insurance in 1919; the first to have a call centre to handle emergencies in 1996; and the first to launch digital applications for services and inquiries in 2014, just to mention a few. In recent times, Rimac has made significant investments in technology to modernise its infrastructure and make the leap towards becoming a customer-centred company.
Its solidity and financial support are recognised by two of the most important international rating agencies: Moody’s Investors Service and Fitch Ratings, which awarded the company the best risk rating in Peru, making it the only insurer in the country that operates with such qualifications in the areas of general risk and life insurance. It has also been awarded A+ rating by the two most important risk rating agencies in Peru: Equilibrium and Apoyo & Asociados.
Its business development, financial strength, highly specialised team, and search for continuous innovation have made Rimac a leader in the insurance market throughout the past 12 years. It is the insurer that offers protection to two-thirds of large investment projects in the country.
Being recognised as the most reputable insurance company in Peru, Rimac’s leadership in sustainability is considered of great importance. It is also the first insurance company in the country to present sustainability reports under the parameters of GRI4. Furthermore, Rimac has received several awards for its performance as a good employer and for being a socially responsible company. This is reflected by the fact that every year, the Lima Stock Exchange recognises the company for having the best corporate governance practices in Peru.
Rimac is committed to remaining at the forefront of change, which will ensure its sustainability in the face of new tests and challenges in a constantly changing market. Cohesion and team capabilities, commitment to customers and business partners, and the introduction of technological changes are key factors for continuing to lead Peru’s insurance market.
In a turn of events that defied the predictions of opinion polls and widespread media expectations, Donald Trump has taken victory over his democratic rival, Hillary Clinton. After a particularly fierce campaign, global markets now have begun the process of figuring out what exactly Trump’s policies will mean for both the US and international economies.
Trump led a freewheeling and aggressive campaign full of contradictory statements, which led to fears of an uncertain future. These concerns initially rattled markets as the election results trickled in. On Tuesday night, as Trump’s victory became clear, futures trading of US stocks immediately crashed – however, markets began to turn around following his victory speech, which struck a far more conciliatory tone than his previous campaign efforts.
Immediately following Trump’s victory, the peso suffered its largest drop in nearly 20 years
In the days following, investors have continued to push the stock markets in sectors that are expected to benefit from Trump’s policies. As reported by Reuters, the healthcare and financial sectors posted gains of three percent each on Wednesday, with Trump’s ambition to repeal the Affordable Care Act and free up banking regulations seen as a chance for growth. The US manufacturing sector also saw a boost, with a rise of one percent across the Dow Jones industrial average. Returning manufacturing to the US was a lynchpin of Trump’s campaign, and overall Wall Street has welcomed Trump’s broadly pro-business sentiment, Bloomberg reports.
One sector of the US economy facing increased uncertainty is Silicon Valley. While Obama was particularly supportive of the technology industry during his presidency, Trump has expressed hostility towards companies including Apple and Amazon. As reported by TechCrunch, Trump could stall attempts solidify net neutrality and weaken encryption standards to allow law enforcement agencies greater access to data. He is also opposed to overseas manufacturing and shifting profits offshore, particularly at Apple.
Other industries that have seen a fall in confidence are those that rely on open trade, with transport firms and manufacturers in Asia hit particularly hard. Trump’s protectionist policies, which are designed to reinvigorate US manufacturing, may result in a drop of Asian imports, Reuters reported.
In the lead up to the vote, the value of the Mexican peso had been matching Clinton’s support polls. Immediately following Trump’s victory, the peso suffered its largest drop in nearly 20 years, reported TheNew York Times. More uncertainty is expected in the future.
Markets will undoubtedly continue to carefully scrutinise all of Trump’s statements leading up to January next year, when he officially takes office.
Despite its growth in recent years, underinsurance remains an ongoing problem for Kenya. Its lack of penetration largely comes down to a negative view of the industry, which has led many to save through credit cooperatives instead. The scene, however, is finally starting to change, as the country’s expanding middle class increasingly opts for insurance products. Capturing the potential of this growing market is no small feat, particularly given the level of competition in the game. To do so, Britam Life Assurance places talent as the crux of its success.
Britam is a leading diversified financial services group, listed on the Nairobi Securities Exchange. The group has interests across the eastern and southern Africa regions, with operations in Kenya, Uganda, Tanzania, Rwanda, South Sudan, Mozambique and Malawi. Offering a wide range of financial products and services in insurance, asset management, banking and property, Britam’s range includes life, health and general insurance, and pensions. The company is also involved in unit trusts, investment planning, wealth management, offshore investments, retirement planning, discretionary portfolio management, property development and private equity.
At this decisive time, World Finance spoke with Ambrose Njuba Dabani, Britam’s CEO and Principal Officer, about the evolution of the market and how he aims to push the company further forward.
A major challenge to growth in the industry is a widely held perception that insurance agents and companies are unscrupulous fraudsters
Can you give us a brief overview of the insurance industry in Kenya?
Kenya’s insurance industry is one of the most developed and well regulated in Africa. Over the years, insurance penetration in the country has been improving steadily, supported by the growth of the middle class and increased disposable incomes.
Recently, the country’s Insurance Regulatory Authority introduced a risk-based capitalisation supervised model to protect policyholders; it requires insurance companies to hold capital commensurate with their size and risk profile. As well as boosting confidence for policyholders, this development also encourages mergers and acquisitions of smaller, mainly family-owned businesses, so they can meet the new requirements.
In 2015, insurance market penetration stood at 2.9 percent of Kenya’s GDP, of which 1.06 percent was life insurance, while non-life was at 1.87 percent. Life insurance claims in the industry increased to KES 33.1bn ($327.3m) in 2015 from KES 2.3bn ($22.7m) in 2014, with numbers expected to continue rising over the next few years.
What are some of the challenges and opportunities in Kenya’s insurance sector?
Although it continues to grow, Kenya’s insurance sector faces a number of challenges that slow down the rate of penetration. The industry is extremely competitive, and is defined by extreme price undercutting, fraud and consumer apathy. There is also the problem of having too many players in a small market.
A major challenge to growth in the industry is a widely held perception that insurance agents and companies are unscrupulous fraudsters – that they are out to steal their clients’ money. As a result, a majority of Kenyans are wary and prefer to save and invest through savings and credit cooperatives. Furthermore, insurance is also seen as a luxury expense for the majority of citizens, and so is considered a preserve of the rich.
Despite such challenges, there are numerous opportunities within the sector. Alongside the aforementioned rise of the Kenyan middle class, the country is also undertaking giant infrastructure projects, such as the construction of a standard gauge railway and the Lamu Transport Corridor, both of which provide new potential for the market. New industries, especially in the oil and gas sectors, have also provided potential new demand for the sector.
Finally, the introduction of the government’s devolution system has led to a surge in insurance penetration in previously marginalised and mainly rural areas. This will lead to greater awareness about the industry in previously untapped markets. As a result, underwriters and brokers have had to move from the traditional urban markets in big cities such as Nairobi, Mombasa and Kisumu, among others, in order to venture into previously uninsured rural regions.
How does Britam go about recruiting managing agents?
At Britam, our unit managers are charged with the responsibility of recruiting agents, which they do through a meticulous process. They start by advertising the positions in print media, on the Britam website, and on social media platforms. We also advertise in public places, such as shopping malls.
We get numerous referrals by our agents, customers and other stakeholders as well, while our unit managers are trained to judge the suitability of each individual. Once in a while, the unit managers use their instinct and skills to spot an individual who they think could be a good insurance salesperson. As this can happen anywhere, at any time, unit managers are always on the lookout for people with potential.
Why is training managing agents important?
Insurance is a business with a high employee turnover. Our focus is to retain the most successful financial advisors and nurture those with potential. All our agents are trained in leadership, and non-graduates are trained in personal development to ensure they develop the right attitude and philosophy when working.
Our agents are trained and inspired to create their own goals without contractual burdens by the company. This means agents are self-driven to excel and surpass set objectives; in return, when they excel the company handsomely rewards them.
$327.3m
Kenyan life insurance claims 2015
2.9% of GDP
Kenyan insurance market penetration
As we encourage our agents to specialise in specific products, we offer them high-level training that can meet all the needs of a forward-looking career in insurance. The training ensures individual agents set their own personal targets, which in turn makes it easier for the company to attain overall targets. It also equips agents with the skills that will keep them at the top of their game.
How does Britam make sure managing agents meet compliance standards?
All Britam agents sign up to a code of conduct when they join the company, in addition to their individual contracts. Once this stage is complete, the company gives financial advisors a platform to run their own show. There is seamless team dynamic among the advisors, unit managers and branch managers. All the while, our appraisal system keeps evaluating progress and encouraging better performance.
All agents must adhere to the laws set by regulators, which include obtaining the licenses required to operate. They must also pass various professional examinations that are required by law. In addition, Britam has a zero-tolerance policy on corruption. Non-compliance by agents leads to the termination of their contract. Moreover, agents who do not perform are terminated, while those that need nurturing and encouragement are mentored. We give them the tools they need to become the best.
How does Britam go about maintaining the productivity standards of its managing agents?
All those in leadership positions at Britam have a role to play in mentoring agents. The financial advisors look up to the unit managers, who in turn have the branch managers as their role models. The secret to this is simple; to succeed as a salesperson, you must have a compelling vision and you must remain focused on the goal.
In 2015, Britam was named Company of the Year by the Association of Kenya Insurers (AKI), which is the ninth time Britam’s agents have received this award. As further proof of the company’s dominance in the industry, 156 out of 280 agents recognised with awards by the AKI were from Britam.
To receive such recognition, the AKI demands an agent writes business worth KES 2.4m ($23,720) annualised premium income, with a minimum of 50 policies. The efforts of our agents saw Britam realise over KES 2bn ($19.7m) of annualised premium from individual life insurance business in 2015. The AKI also requires 85 percent of the clients netted in the year are under review, while 80 percent from the previous two years must be active in paying premiums.
At Britam, we appreciate our financial advisors and the role they play in maintaining the company’s position as a market leader. Dr Benson I Wairegi, Britam Holding’s Group Managing Director, recently said: “Our financial advisors are the lifeblood of Britam, they are our foot soldiers and ambassadors. They have done more to promote the Britam brand in Kenya than any advertising campaign can ever do, and we are truly proud of them.”
What is in store for Britam’s future?
Britam aims to have between one and two million clients in the next five years – up from the current 100,000. This projection corresponds with the continued growth of the insurance industry, as more and more Kenyans embrace and appreciate the art of saving for the future.
The company also continues to invest in technology and innovative products that will further boost the customer experience going forward.
Indonesia remains a highly attractive market despite the country’s recent economic slowdown. The Emerging Trends in Real Estate Asia Pacific 2016 survey, conducted in November 2015 by the Urban Land Institute and PricewaterhouseCoopers, ranked Jakarta sixth globally in terms of its prospects and property development potential in the Asia-Pacific region.
Similarly to agriculture, industry, trade and services, the property/real estate sector holds an important and strategic role in building the economy of Indonesia (see Fig 1). Real estate is positioned as the locomotive of the national economy, as property – particularly housing development and construction – has a strong multiplier effect. This sector has the ability to attract and encourage the development of other economic sectors. There are at least 175 subsectors related to the property/real estate market, such as steel, aluminium, pipe, cement, tile, stone, roof tile, glass, paint, furniture, wood, household appliances, electrical tools, home appliances and gypsum.
Moving forward, greater clarity on the political front should lead to stronger demand for investment and a more optimistic outlook for the property/real estate sector, especially for residential property. The Indonesian Central Statistics Agency has shown the country has a good demographic profile, with 50 percent of the population aged under 30 years. The country’s large housing backlog, currently standing at around 13.5 million units, opens more opportunities for property development as well.
The property/real estate sector holds an important and strategic role in building the economy of Indonesia
Serpong rising
The most popular cities in Indonesia for property investors (other than Jakarta itself) are in the Greater Jakarta area – chiefly Serpong in Tangerang. Each city has its own unique strengths for development: because of the high value of land, Jakarta is usually targeted for the vertical development of upper middle-class to upper-class properties, while Serpong in Tangerang is targeted for ‘landed house’ developments, or single housing units, for the middle-classes.
In Serpong, house prices have been rising for the last five years, driven by a rapid increase in land prices. Land prices in commercial and business areas reach around IDR 20-27m ($1,500-$2,050) per square metre. Besides being close to the capital, the ease of access via new toll roads has boosted the growth of the property industry in the region.
Despite significant land appreciation in both south and central Jakarta, Serpong is witnessing rapid growth of land prices year on year. The availability of land, and the increasing need for housing because of population growth, continues to increase, while more and more corporations are choosing to relocate their head offices from Jakarta to the Tangerang area due to heavy traffic and overcrowding in the city. This will create even more demand for housing. Serpong, therefore, is an area with bright prospects. An ever-growing number of investors can be expected to target the area, with a property boom forecast soon as well.
Just 16 years ago, few would have thought Serpong would reach the prosperity it now enjoys; at that time, the area was an overlay of unproductive land and rubber plantations. With the emergence of large property projects, its status has changed dramatically: a number of firms have since been undertaken by large developers, including a township project by Paramount Land, the property arm of PT Paramount Enterprise International (Paramount Enterprise), namely the Gading Serpong township. This firm is one of the leading private property and lifestyle companies in Indonesia, and has revolutionised the face of Serpong.
Gading Serpong
Gading Serpong is Paramount Land’s flagship project – one of the most ambitious urban planning schemes in Indonesia, which combines housing, business and commercial properties. The company has cemented its place among the leading developers in the region, offering unique concepts and the utmost quality in residential, leisure and commercial developments. It is committed to delivering the highest quality for its customers, encompassing every element from the design and materials to the location, as well as ensuring the customer journey – from prospecting to the handover of keys – is worth their time and investment.
Over the years, the company has thrived in its business operations, remaining strong as it launched new projects and site developments, while consistently receiving support and confidence from the market. Gading Serpong, which is situated 30km from the central business district of Jakarta, enjoys a strategic location, with its close proximity to Soekarno-Hatta International Airport and accessibility via two toll roads – the Jakarta-Merak and the Jakarta Outer Ringroad. This has made Gading Serpong a new economic hub at the centre of several other property and township developments that are being undertaken by various renowned Indonesian firms.
The development of the 1,200-hectare township has been so successful that Gading Serpong has become one of the busiest trade and business centres in Tangerang, as well as one of the most desirable locations in which to live and invest. The population in the Gading Serpong township currently stands at more than 53,000 people, not counting those who commute to Gading Serpong to work or visit.
Hotels, hospitals, schools, universities, commercial areas, restaurants, supermarkets, hypermarkets, fresh produce markets, shophouse complexes and offices are now found across Gading Serpong. In addition, essential cultural structures have been built, such as places of worship, sport and recreation facilities, community complexes and green public spaces. Travel within the township has also been made convenient via pedestrian walkways, bicycle lanes and various forms of public transportation.
“We have found that property in the township is attractive both to residents and investors alike due to Gading Serpong’s fast return on investment”, Ervan Adi Nugroho, President Director of Paramount Enterprise, told World Finance. “In order to continue growth amid tight competition in Indonesia’s property industry, Paramount Land prioritises constant innovation. For the last couple of years, we have provided our customers with products that are not only acceptable or affordable, but meet their needs as well. We provide a wide variety of designs, layouts, façades, colours and prices.
“We are committed to providing excellence, especially in terms of service, product quality and on-time delivery. To achieve this, we continue to improve our services to our customers during the construction period, handover and after handover.” Furthermore, Nugroho added, it is important to note “we are not only building homes, but also a community”. The firm’s motto – “building homes and people with heart” – underlines this ideal.
In total, during 2015, Paramount Land handed over eight clusters to its customers, consisting of more than 1,800 units. During the first semester of 2016 alone, the company has handed over seven clusters, or 1,500 units, to consumers.
Further up the hill
Paramount Enterprise’s scope, however, extends further than just Gading Serpong. Nugroho explained that, besides the plans it has to develop other townships in the future, Paramount Land plans to build several real estate developments, which are smaller in size than townships. These are developed in many major cities in Indonesia to help provide much-needed housing.
In 2015, Paramount Land launched the development of two real estate projects outside Gading Serpong, namely Paramount Village (nine hectares) in Semarang, Central Java, and Paramount Hills (20 hectares) in Manado, North Sulawesi. Nugroho said: “The company’s footprint now extends to other cities in Indonesia, to deliver a unique living experience.”
Paramount Land is also an award-winning company, having received an array of awards in 2016 alone, including: a top 10 developer award from BCI Asia; top 25 most creative companies in Indonesia from Swa magazine; one of Indonesia’s most admired companies by Warta Ekonomi magazine; and Developer with Unique Investment Products in Gading Serpong from Property & Bank magazine. Paramount Land has even received acknowledgement from the Indonesian World Records Museum for the largest number of design alternatives (1,296 alternatives) for custom homes at Malibu Village in Gading Serpong.
Paramount Enterprise also develops hotels and hospitals. At present, it owns and manages six hotels that are located within various business hubs, with four hotels in Gading Serpong: Atria Hotel (four-star), Atria Residences (four-star), Ara Hotel (three-star) and Fame Hotel (two-star). In addition, the company owns a four-star hotel in Central Java and another four-star hotel in East Java. Its hotel management company, Parador Hotels & Resorts, Paramount Enterprise, also manages hotels owned by third parties.
In the healthcare sector, Paramount Enterprise owns Bethsaida Hospital. The site is the first general hospital in Gading Serpong and provides quality and affordable healthcare, not only for residents, but also for the people living in West Jakarta, Tangerang and the surrounding areas. The centre includes aesthetic, orthopaedic, dental, hyperbaric and cardiac care.
In terms of retail, Paramount Enterprise operates various fashion stores, convenience shops, mini-markets and cafés that serve the varying needs of a rapidly growing suburban population. The existence of business units is one of the strategies in place to increase and optimise the company’s recurring income.
Paramount Enterprise has developed its property and lifestyle business in response to the demographic shift currently taking place in Indonesia, which includes a growing middle class. “We are ready to meet the customer’s needs by providing products and services they desire”, Nugroho said. “We look forward to effective government investment in infrastructure and are hoping to see continuation throughout the coming years to boost growth.”
Chile’s insurance market is one of the most competitive in the region. However, Consorcio Seguros, with a century of history behind it, has pulled ahead of the pack. Like any market immersed in the global economy, Chile’s economic outlook has encountered its share of adversities over the past year. Maintaining leadership in any industry in this country entails a set of challenges for companies involved. With an economy with a GDP per capita that has surpassed $23,000 – historically among the highest in Latin America – Chile’s insurance industry is highly developed and continues to offer ample growth potential.
In Latin America, Chile is ranked first in terms of the number of insurance policies taken out per capita – a clear sign of the sustained economic development seen in recent years, as well as rising income levels. In the life insurance industry alone, Chile is home to 36 companies, with 28 insurance companies in the general insurance industry. Among these, major multinational companies are present in the Chilean insurance market, including MetLife, Principal, Liberty, AIG, Mapfre, RSA and HDI (part of Grupo Talanx).
In Chile, between 1985 and 2015, insurance penetration rose from 1.98 percent to 4.71 percent of GDP in total premiums, and from 1.03 percent to 3.23 percent in the life insurance market alone. As such, according to figures from 2015, there are an estimated 60 million insurance policies in Chile, with an average of 3.36 insurance policies per person and a direct premium per capita of $582.
Chile’s insurance industry is highly developed and continues to offer ample growth potential
Although these figures point to significant growth over the past decade, there is still a serious gap between Chile and developed countries, where average insurance penetration is 8.7 percent of GDP. With this in mind, the insurance sector is on track to continue growing in Chile at a faster rate than GDP, essentially due to one very logical reason: if we compare insurance consumption in Chile with that of developed countries, the gap is still wide and there is much space to grow.
Central challenges
Healthy competition, increasingly informed customers and access to a broader range of products, as well as new regulations related to oversight and capital requirements, are all factors contributing to the creation of fresh challenges for stakeholders involved in the insurance market. We in the insurance industry must strive to stay up to speed with regulatory changes, constantly improve corporate governance and, of course, develop better strategies, products and services to meet customer needs.
In the medium term, insurance companies in the Chilean market will have to adjust to the new ‘risk-based capital’ requirement, currently being debated in Congress and a path already taken by various other countries around the world. In this sense, the objective of Consorcio Seguros is to be the company with the most robust balance sheet in the insurance industry, and to be ready to respond smoothly to changing regulations, continuing our focus on growth and relationships with customers and brokers.
Chile’s Congress is also discussing the creation of a Securities and Insurance Commission, which would open the door to a new set of challenges that may have an impact on profits, by enhancing current oversight practices and granting stronger guarantees to all stakeholders, to the benefit of consumers. According to industry forecasts, the insurance sector will grow at a rate of around five percent this year. For life insurance specifically, growth will be led by savings insurance, health insurance and life annuities, while general insurance will be led by guarantee policies.
In these circumstances, and in light of the fact that Chile continues to be a market with broad growth potential, the region undoubtedly enjoys conditions that will favour international growth for those involved in the market. This will also require addressing development with a new approach. Essentially, we stand before a competitive and challenging scenario, in which Consorcio Seguros has managed to solidify its position on the occasion of its 100th anniversary of success and leadership.
Regional expansion
Chile is privileged to have a mature, developed and varied insurance industry, able to provide diverse coverage alternatives at competitive prices, with high levels of commitment and solvency. The industry plays a very important role in society and, throughout the past 100 years of our history, Consorcio Seguros has reaffirmed its leadership position, becoming top-ranked in equity, total assets and premium income. Moreover, we achieved a milestone for insurance groups, exceeding $1bn in premium income in 2015, through the three insurance companies that comprise Consorcio Financiero: Consorcio Seguros Vida, CN Life Seguros Vida and Consorcio Seguros Generales.
The parent company, Consorcio Financiero, has secured its position as a leading financial services provision group, with interests in a wide range of businesses related to insurance, social security, savings and banking. Through its affiliates, it manages a total asset volume of over $13bn. In the insurance business, Consorcio Financiero conducts activities in Chile through three companies: Consorcio Seguros Vida, CN Life Seguros Vida and Consorcio Seguros Generales, and is also active in Peru through the insurance company La Positiva Vida.
Looking to the future, Consorcio Financiero is expecting to further consolidate its leadership. To this end, the International Finance Corporation (IFC), a member of the World Bank Group, has signed a capital increase for the amount of $140m, representing an 8.3 percent stake in the ownership of Consorcio Financiero. With these funds, the company will be able to bolster its development plans and strengthen its banking and life insurance business lines.
4.71% of GDP
Chile insurance penetration
$13bn
Consorcio Financiero total asset volume
$1.14bn
Consorcio Financiero equity
Alongside this, the IFC’s role will be to help reinforce the company’s corporate governance. In this realm, it is worthwhile to note that responsible management with an eye to the future is the way we do business, working proactively to advocate for the best interests of our customers, associates and shareholders. Thanks to a robust structure, we are constantly working to ensure the development of our various businesses, as well as compliance with both internal and external rules and regulations, based on the best global practices.
One of the major accomplishments of the past 12 months was when Consorcio Seguros joined the life insurance market in Peru with the acquisition of 40.1 percent of insurance company La Positiva Vida. It is the fourth largest insurer in Peru, with a 10.8 percent market share, almost one million policyholders, and assets and equity equivalent to $900m and $94m respectively.
Consorcio’s entry into the Peruvian insurance market was a strategic decision and marks a great opportunity to help take the company global, while also boosting our knowledge and experience in one of the most dynamic markets in the region, with major growth potential for the insurance industry.
Domestic leader
Besides the inroads made in Peru, the company has reached other major milestones in the local market, including the launch of a new life insurance policy with savings. It is the most flexible on the local market in terms of capital, coverage and savings methods, aiming to tailor insurance policies to our customers pursuant to their evolving needs over time.
In the life insurance industry, once again, Consorcio is a market leader, with premium income accounting for 13.8 percent share of total industry income, thanks to our successful strategy, effective risk management and administration of operations. The life annuities business was the most dynamic, with record growth for the industry of 55.2 percent in 2015 for Consorcio’s life insurance companies.
These achievements have turned us into a renowned brand in the industry, backed by a history of resiliency, experience and the firm support of our customers. Today, in an increasingly complex economic scenario, Consorcio Seguros remains firmly committed to its customer-centric approach, which gives us an edge as we tackle the uncertainties of a rapidly evolving market.
Key to the progress made and the accomplishments of the past year was the development and implementation of concrete initiatives to strengthen corporate governance and the launch of a comprehensive risk management system. Our company management is grounded in a clear, customer-orientated strategy, with a motivated and committed team, as well as prudent risk management. All of these are essential to the activities in which we engage. Also of note, for the third year in a row, Consorcio was awarded ‘Top Employer’ certification, in recognition of our excellent working conditions. We are the first Chilean company to receive this honour.
In the current context, the biggest challenge before us will be to preserve our growth and leadership in a market that is in full swing. Reaching our 100-year anniversary in such a competitive market as the life insurance industry fills us with pride and energy for the future, as one of the top-ranked companies in terms of market share. Our goal, looking ahead, is to consolidate our presence and strengthen our brand positioning, continuing to earn the trust of our customers and partners.
In July, Shinzō Abe showed himself to be one of post-war Japan’s most successful and powerful politicians, as the Prime Minister of Japan once again claimed victory in the country’s upper house parliamentary elections.
The Liberal Democratic Party (LDP) and its junior coalition partners received 70 of 121 available seats in the 242-seat chamber, giving Abe’s party, alongside its coalition partners and other independent politicians, a two-thirds parliamentary majority.
While much international focus has been on how this will give Abe the lawful majority to amend aspects of Japan’s constitution, many observers have noted how the election was fought primarily on economic grounds.
Abe has a deep commitment to Japanese conservatism, yet his commitment to reforming his economy has led him to compromise on such principles
Abe has also proven himself to be one of modern Japan’s most resilient prime ministers. While not yet the country’s longest serving prime minister, he has proven himself to be a greater source of stability than many other incumbents in recent years. Since 2007, Japan has had six different prime ministers, with the rotating premiership widely perceived to have added to Japan’s inability to adequately deal with its economic difficulties.
Abe has gained support from far-reaching segments of Japanese society for a number of reasons: his successful bid to change Japan’s constitution, with the intention of weakening its pacifist elements, has led to sharp divisions among Japanese citizens, yet his tenure as leader of the country is closely tied to his promises of economic reform. His plans and actions for reviving the sluggish Japanese economy have come to be known as Abenomics.
Path to power
Abe’s path to power has been a long one. Born in Nagato Province in 1954, Abe was Japan’s first prime minister to be born after the conclusion of the Second World War. He also came from political stock – both his father and paternal grandfather were influential politicians, while his mother was the daughter of Nobusuke Kishi, Japan’s prime minister between 1957 and 1960. His family’s rich political history is often said to have been a major influence on him.
In 1977, Abe graduated from Seikei University in Tokyo, having studied political science. He then travelled to the US to study at the University of Southern California’s School for Public Policy. Following the conclusion of his studies, he began to work for Kobe Steel. However, he soon followed in his family’s footsteps and began to pursue a career in politics.
He left Kobe Steel in 1982, entering his political career through holding a number of posts, including executive assistant to the Minister of Foreign Affairs and private secretary to both the chairperson of the LDP General Council and the LDP Secretary-General.
After 11 years, Abe was elected to the House of Representatives for the first district of Yamaguchi Prefecture, marking the start of his career as an elected politician. From the late 1990s to the early 2000s, he held a number of cabinet positions for the LDP, as well as serving as Japan’s chief negotiator with North Korea, where he represented the families of Japanese citizens abducted by the North Korean regime.
The prestige he gained in these roles soon earned him enough support to be elected president of the LDP, which in turn led to him being elected Prime Minister of Japan in 2006, aged 52. However, his initial reign as prime minister was to be short-lived: he resigned from the position in 2007 when his party began to suffer from unusually poor election results. However, in 2012 he returned to power, and has led the LDP to numerous electoral victories since.
52
The age at which Abe became Prime Minister, making him Japan’s youngest post-war leader
¥10.3trn
Value of the stimulus package proposed in Abe’s first budget in 2013
30%
Abe’s target for industry leadership roles to be held by women by 2020
1.4
Japan’s birth rate per woman, an issue Abe has put at the centre of his Abenomics policy
With his family being key figures in the history of the LDP – the dominant conservative political party in Japan – Abe is often referred to as a deeply conservative man “whose life and family history is wrapped up in the LDP and its traditions and constraints”, according to David Ignatius of The Washington Post, speaking at a Council on Foreign Relations event in 2015.
However, Ignatius also noted that the economic problems facing Japan have made Abe an accidental progressive. This unintentional liberalism was borne of his acceptance of reality and his recognition of the fact that deep reforms are necessary if Japan hopes to deal with its past few decades of economic malaise and stagnation.
Structural struggles
Since Abe’s second term as prime minister began in 2012, he has made the economy his core agenda.
Abenomics – the common name for Abe’s economic policy – is composed of three prongs: fiscal stimulus, monetary easing and structural reforms. Abe has aggressively pursued fiscal stimulus, recently approving a multibillion-dollar stimulus magazine, while the Bank of Japan has taken the once-unprecedented step of maintaining a negative interest rate.
However, Abe himself faces the biggest challenge when it comes to structural reforms: one of the key reasons cited for Japan’s sluggish economy is its ageing workforce, and so a crucial focus of this policy has been repairing the Japanese labour market. The country’s fertility rates have plummeted, and at present the birth rate sits at 1.4 births per woman, meaning it is well below the replacement rate. At the same time, advances in medical science have meant Japanese people are living longer than ever before; Japan has the oldest population of any major economy in the world.
Depressed birth rates have meant there are fewer young people who are able to join the workforce, while an ageing population means there are more people leaving the workforce and then living for longer periods of time. This has created a top-heavy demographic bulge in the country: fewer people entering the workforce has stunted the Japanese economy’s ability to grow, while a large pool of retirees – drawing their living from previously acquired wealth – has meant less saving funds for investment.
A large retired population is, of course, something that cannot be addressed. While it may have economic drawbacks, it is also testament to Japan’s ability to provide a decent quality of life, allowing record numbers to live longer lives. However, the issue of fewer people entering the workforce can and – to a limited extent – is being addressed by Abe.
Compared to the rest of the industrialised world, Japan has a much lower labour force participation rate for women. By contrast, it has one of the world’s highest labour force participation rates for men. Boosting the number of women entering the workforce, then, would help alleviate current demographic pressures. Abe has recognised this, and pursued policies in this direction: a policy he has termed ‘womenomics’. Speaking at the 2015 World Assembly for Women in Tokyo, Abe said: “Abenomics is womenomics.”
Since 2012, he has pursued a raft of reforms aimed at creating conditions that will encourage more women to enter the workforce. These reforms seem to be working to a limited extent: according to figures from the OECD, Japan’s female labour force participation rate has grown from 65 percent in 2013 to 66.7 percent in 2015.
Japan still has a long way to go in terms of seeing more women enter the workforce, but Abe’s policies are in general pushing progress in the right direction. He has worked towards expanding access to childcare, and has pledged that by 2017 Japan’s currently long waiting lists for childcare facilities will be eliminated, allowing some 400,000 children to be accommodated. At the same time, experimental policies are being pursued to lift bans on immigrant housekeepers in Osaka and Kanagawa, with an eye to expanding the policy nationally.
The Japanese economy has been struggling in recent years, something often attributed to the shrinking workforce
The fact that lifting bans on foreign housekeepers should initially require district-specific experiments nods towards another key issue afflicting Japan’s ability to deal with its ageing population: immigration. Japan is, for an advanced economy, a uniquely homogenous society. Conservative social attitudes have meant that, while much of the industrialised world has seen major waves of migration since the mid-to-late-20th century, Japan has largely declined to open its doors to foreign workers. While 11 percent of the UK’s workforce does not have British citizenship, and 17 percent of workers in the US are foreign-born, less than two percent of Japan’s labour force is made up of foreign workers.
Abe, being socially conservative himself, is far from an advocate of increased migration to Japan. However, by also being an accidental progressive, he has recognised the necessity of boosting immigration in order to address his country’s demographic issues.
The LDP announced this plan in its policy platform for the latest elections. It noted concern over the fact that “grave effects are emerging because Japanese people alone are insufficient for the workforce”. To this end, the party explained that a “large increase in foreign workers
is anticipated”.
The Japanese Government has now started to relax its notoriously strict foreign worker rules. Principally this will involve a pledge to introduce a permanent residency card – planned to be the fastest in the world – to skilled migrants. Furthermore, migrants with the desire and skill to work in nursing homes should see restrictions relaxed, while migration will also be increased for the construction of the 2020 Olympics project.
Conservative reformer
Policies aimed at increasing the working rate for women and increasing immigration, although by no means the complete solution, are the sort of policies Japan needs. Such policies may make many citizens uneasy, going against the traditionalist values held by some sections of Japanese society – not least portions of Abe’s political party’s constituency. However, Abe, with his conservative credentials, has been able to push forward with such reforms out of necessity.
His family’s long history with conservative politics generally and Japan’s LDP specifically – and his own heartfelt commitment to conservative principles – gives him the credibility to sell these polices to the public on the basis of absolute necessity. Abe has a deep commitment to Japanese conservatism, yet his commitment to the country and to reforming his economy has led him to compromise on such principles in the name of pragmatism. If Japan is able to continue pushing ahead with such reforms, he may well prove himself to be the saviour of Japan’s sluggish economy.
Shinzō Abe CV Born: 1954, Nagato Province, Japan Education: Seikei University
1954
Abe was born in Nagato Province to a politically prominent family. Many of his relatives, including his father, were influential politicians, while his mother was the daughter of former prime minister Nobusuke Kishi.
1978
Having graduated from Seikei University with a degree in political science the year before, Abe travelled to the US to study public policy at the University of Southern California School for Public Policy.
1982
Abe’s political career began when he left his job at Kobe Steel to take on a number of posts within the Japanese Government, including executive
assistant to the Minister of Foreign Affairs.
2002
While serving as deputy chief cabinet secretary, Abe travelled to North Korea as Japan’s chief negotiator. Here he negotiated the release of five Japanese citizens who had been kidnapped by the North Korean regime.
2006
Abe was voted in as the leader of Japan’s Liberal Democratic Party. This move led to him being elected the Prime Minister of Japan at age 52. He resigned from the position a year later, citing health reasons.
2012
Abe returned to power as the country’s prime minister. Since his second term began, he has focused on boosting Japan’s dwindling economy through fiscal stimuli and reforms and tackling its shrinking workforce.
After almost half a century of the country’s insurance sector being a closed monopoly, Myanmar recently opened its door to both domestic and international insurers. The transformations have been rapid, and have occurred throughout all sectors. A dozen domestic private insurers have been formed since 2013, while an array of eminent multinational insurers too have opened their representative offices in the country.
Moreover, three international insurers of repute have been allowed to conduct business domestically, although they are limited to the Thilawa Special Economic Zone. Nonetheless, the market still remains highly controlled, with state-owned Myanma Insurance being the dominant player. There is no room for actual competition yet, and foreign firms are being kept at a distance. That said, the initial, crucial steps have been taken and the prevailing conditions seem to be right for accelerated development.
Change is afoot
This year marked the second ever census report being published in the country, which was a milestone in itself. The 2014 census revealed the latest demographics of Myanmar, reporting a population of 51.5 million (see Fig 1). Around 30 percent of the population were found to be living in urban areas, and the remaining 70 percent rural. Trend analysis shows nearly 54.9 percent of Myanmar’s population falls into the ‘productive population’ age bracket of 15-64 years. At the same time, with a flourishing middle-class and population growth at 0.89 percent per annum, Myanmar’s statistics certainly attract investor’s attention from across the globe.
The emergence of foreign players in the insurance sector is a testament to the vast potential within the
Myanmar market
The year 2015 was one of transformation for the country and its people: the insurance market had to face several changes, as well as challenges. These included greater competition, an increase in claims and some important modifications within the regulatory framework.
We are very pleased, however, with our 2015 results, and despite all the transitions happening, we managed to reach our goals and maintain our position as the undisputed market leader among the country’s private insurers for the second consecutive year. During these years, we have maintained a responsible and sustained growth line, focusing on prompt customer service and operational efficiency, yet without altering our stringent risk and cost control guidelines. At IKBZ, we make sure guidelines are supported with timely and adequate investment for modernising the company, and always strive to stay abreast with changes in the market and industry.
Political situation
In recent times, if there was one milestone for the country and its people, it has to be the landslide victory of Aung San Suu Kyi’s National League for Democracy party, which won a credible election with almost no violence. Five months into the new government’s five-year term (at the time of writing), it is a little too early to decide and judge the credibility of its performance. Nevertheless, its priorities and approach are becoming clearer and more transparent, and there are some initial indications of how the nation’s political party is tuning into changed realities.
These provide the basis for an initial assessment as Myanmar’s transition enters a new phase under a democratically elected government, which has set a positive initial tone and taken important steps to address the previous legacy. Going forwards, the government plans to lay policies encouraging the liberalisation of the insurance sector. The regime has promised at every opportunity to incentivise the private sector as a means to propel sustainable economic growth.
Governance is one of the critical factors that can explain the divergence in performance across developing nations. Of late, there has been much talk about good governance all across the media. For a country to develop, good governance at both levels – corporate and government – needs to be practiced. It is all the more necessary for public companies to show an elevated level of good governance as the public invests their money by buying shares.
The fate of a company’s shareholders therefore relies on the financial performance of those companies. The key elements of good governance are the absence of corruption and the use of accounting standards, while the corporate body’s financial affairs must be managed with the utmost transparency and accountability. This means it has to be done with the three Es: economically, efficiently and effectively. With these in place, good governance will prevail in corporate bodies, much to the advantage of shareholders, stakeholders and the country at large. Government and non-government organisations are taking measures to share knowledge about good governance to their members by organising seminars and workshops.
The new government demonstrated its rational approach to economic policy when it formed the financial regulatory department, which plays a secretarial role for the newly restructured Insurance Business Regulatory Board under the Ministry of Finance. The members of the new regulatory board are now an amalgamation of retired insurance officials who are working in private insurance companies, people holding high academic degrees in insurance, and also government officials from the auditor general office and other departments. This certainly shows the current government is taking meticulous steps to support all the sectors with existing subject knowledge and the right kind of local expertise.
The road ahead
There is a great need for the government to address a number of key challenges. After decades of authoritarian rule and civil war, some are long-term issues that need to be attended to. Most important is moving the peace process forwards.
The country has witnessed ethnic tension breakouts for more than half a century, with no resolution for restoring peace so far. Now, with the 21st Century Panglong Peace Conference proposed by the state counsellor Suu Kyi, the conflict may soon fade away and become a thing of the past. This will help immeasurably in mending the tarnished image of the country.
As such, the government must take necessary measures to ensure the army and political parties back its peace initiative. It must also ensure belligerents sign the nationwide ceasefire agreement without any delay. Furthermore, it is absolutely imperative this peace conference must be all-inclusive, keeping national development and human security a priority before anything else.
In addition, the government should implement effective policies that will enable private industries to become more competitive both domestically and globally, thus providing the best deals for customers. Keeping this in mind, we have to adopt effective competition laws and a framework designed to empower the lower strata of society in order to bring about social mobility.
There is also a need to boost the country’s foreign sector. There is no denying the fact that foreign investment in any form can bring much benefit to the country in terms of job opportunities – jobs that are much-needed, considering the current unemployment situation in the country. Foreign investment is a necessity for developing countries like ours, because there are certain industries such as manufacturing, mining, and oil and gas exploration that require the infusion of huge capital beyond the capacity of local entrepreneurs. It is even more important foreign investment is prioritised in terms of the type of industry, which has the potential to effectively contribute to the development of our economy.
Proceeding with caution
In a highly competitive sector like ours, the usual trend that exists between the key players is to appear very similar in terms of product and service delivery. This level of competitiveness within the insurance industry is only expected to increase with the inflow of foreign insurers to Myanmar’s insurance space. The emergence of foreign players in this sector is a testament to the vast potential within the Myanmar market. However, imposing certain limitations on the operation of these foreign players may prove beneficial at present, until the local players are fully equipped to take the lead.
Domestic insurers are generally novices and need time to develop so that they can withstand competition. Liberalisation will thus be a delicate process that will balance opening up the market enough to bring in capital, expertise and capacity for international companies, without overwhelming or crowding out local players. More freedom in terms of policy design and premium pricing will have to be undertaken in such a way as to avoid price wars and substandard coverage.
To witness accelerated development in the sector, we must welcome best practices from the international community. Their services of rendering appropriate guidance, support and wise counsel to domestic players will be highly appreciated. Moreover, they should not shy away from giving befitting advice as and when necessary to the regulators. In the long run, this guidance will not only benefit the insurance fraternity, but will also shape the attractiveness of the country’s retail market. In other words, this will have a profoundly positive affect on Myanmar’s much-needed economic progress.
In October 2008, the Qatari Government launched the Qatar National Vision 2030 development plan, in response to the country’s economic situation. Despite sustaining significant growth and rapid advances in social development, a plan was needed to focus investment in areas that would promote growth on a long-term basis. The plan laid out in the National Vision 2030 plan is one that will support the nation’s development into an advanced economy with consistently high living standards.
The backbone of any developed economy is its banking sector. Without the right programmes and initiatives supporting the private sector, growth is unachievable. Given this, Qatar Development Bank is driving several important programmes to support the young entrepreneurs who will power Qatar in the future. World Finance had the opportunity to speak to the CEO of Qatar Development Bank, Abdulaziz bin Nasser al-Khalifa, about some of these initiatives.
SMEs constitute the foundation of a diversified, knowledge-based and sustainable economy
How will Qatar’s National Vision 2030 plan impact the direction of Qatar Development Bank?
Today, Qatar Development Bank (QDB) is a key player, with a core mandate of contributing towards accomplishing the human and economic development pillars of the Qatar National Vision 2030 plan. Our mandate reflects Qatar’s commitment to develop the private sector, as it strongly believes small and medium sized enterprises (SMEs) constitute the foundation of a diversified, knowledge-based and sustainable economy. Being a strategic player in this transformation, QDB enables the diversification of the Qatari economy by promoting and strengthening private sector development. In doing so, QDB supports local entrepreneurs in a number of ways, both financial and non-financial.
How will QDB promote entrepreneurship among SMEs, and why is this important?
Promoting entrepreneurship is at the heart of our mission. In 1997, the government established QDB with the primary objective of accelerating the growth and economic diversification of the private sector in Qatar. Since then, we have greatly expanded our portfolio. Our most important addition is that QDB today actively promotes entrepreneurship and start-ups in various sectors.
To promote the development and growth of SMEs, QDB now effectively implements a multi-faceted strategic roadmap for start-up development. This includes five key components: specialised consultancy for start-ups, legal support, assistance with financing and audit, marketing and promotion, and matchmaking support with importers abroad. Furthermore, while we support start-ups on every step of their journey, every existing SME we deal with is also eligible to tap into any of these five resources, as per their circumstantial demands.
Lastly, we also support SMEs through the launch of our one-stop shop (OSS) multi-service support centre. Through it, we promote entrepreneurship among SMEs by simplifying market entry for new companies that focus on technology and operate eco-friendly business models. With the opening of OSS, our products and services became more readily available to SMEs, who may now avail themselves of our developmental resources in a single location.
Most importantly, at our OSS we also host the full-service offices of various Qatari ministries and government departments, with whom many SMEs regularly work. In addition, we facilitate official state procedures through our legal consultancy service.
We are strong believers in the power of small businesses to innovate and create value for society. Therefore, we are committed to providing innovative small businesses with a supportive environment, so they can unlock our country’s human potential.
What role does QDB play in promoting the nation’s private sector?
To promote the local private sector, QDB offers a wide-ranging support programme across myriad industries. Furthermore, we have adopted a range of financing and non-financing products, aimed at unlocking access to international markets for local businesses.
Within the country, QDB collaborates with a group of preeminent partners to organise competitions for the creation of start-ups, such as the Al-Fikra National Business Competition. Our strategic partners for these endeavours include both local entities and international corporate, education and petroleum giants operating within Qatar.
Other schemes, such as the Jahiz I and Jahiz II initiatives, seek to empower existing local SMEs that are operating across a diverse range of industries, including chemicals, electronics, plastics, wooden materials, and food. The purpose of these initiatives is to develop the non-oil and gas sectors of the Qatari economy.
Finally, we are firmly committed to the export and promotion of Qatari products across the global marketplace. We regularly conduct studies of Qatari companies that have flourished in their transactions in the international marketplace, and we analyse the causes of their success. Based on our results, we identify importers and arrange matchmaking meetings between local exporters and prospective importers through participation in international and regional trade fairs.
Qatar currently has a large youth population. What policies has QDB pursued to support this demographic?
Our mission has been to instil the spirit of entrepreneurship in the youth of Qatar. We wish to inspire them to lead the change they want to see in this world. To further this, we launched our prized initiative – the Al-Fikra National Business Competition, a nationwide challenge that promotes entrepreneurship and inspires a new generation of Qatari business leaders. Our annual competition is open to university students, entrepreneurs and working professionals.
The competition is based on a team’s ability to successfully propose and develop a workable business concept that can achieve success in the local market. Prizes for the top five entrants include free incubation, admission to an integrated consultancy programme, and access to our financing products. We have been delighted with the reception that Al-Fikra has received over the past four editions, and have recently launched the fifth edition, which is testament to the success the competition has achieved in filling a big void in the field of entrepreneurship and encouraging new businesses.
QDB has taken a role in major projects, including Al-Dhameen and the Jahiz I and II projects. Can you expand on these?
At QDB, we see ourselves at the vanguard of the drive to empower the private sector. Our Al-Dhameen partial loan guarantee scheme is formed in collaboration with local banks and financial institutions. It is at the forefront of our private sector empowerment strategy. It is our way of assisting companies, across all priority sectors, that lack the collateral to secure access to financing.
The Al-Dhameen scheme is viable for both existing companies and young start-ups. Existing companies are eligible for guarantees of up to 75 percent of unsecured outstanding principal loans and financing limits of up to QAR 15m ($4.1m). On the other hand, start-ups that meet our basic criteria are eligible for up to 85 percent of the loan amount.
Jahiz I offers 32 plots to Qatari business owners and entrepreneurs at a competitive lease rate to execute ambitious, eco-friendly industrial projects in the chemical, electronics, plastics and wood industries. Jahiz II offers 14 plots to Qatari business owners and entrepreneurs who wish to start food and beverage manufacturing businesses in Qatar.
Furthermore, as part of the Jahiz initiatives, QDB assists applicants through the provision of comprehensive start-up business solutions, which include consultation, development of business plans, and feasibility studies. The purpose of the Jahiz I and Jahiz II initiatives is to accelerate the development of the private sector and diversify the economy by bringing down the many barriers to entry across a number of hi-tech manufacturing sectors. The Jahiz initiatives are aimed at helping the nation achieve greater self-sufficiency.
Prior to the development of the Al Dhameen partial loan guarantee scheme and the Jahiz initiatives, our analysts researched the demand and supply metrics of the local market, as well as the needs of local SMEs. We then analysed our results, and brainstormed how QDB could help improve market conditions and nurture start-ups and SMEs.
Which segments of the private sector are most important to Qatar’s diversification push, and how will QDB assist in that?
We focus our efforts on accelerating the development and diversification of the economy in line with the Qatar National Vision 2030 plan. To achieve this goal, we segmented the local private sector into the categories that are most vital for Qatar’s diversification agenda. We promote these sectors through investments, as well as providing housing and development-related initiatives on behalf of the government.
Currently, the seven sectors we are focusing on are those that are projected to have an overall positive impact on the social and economic standard of living in Qatar. These sectors are agriculture, education, healthcare, industrial development, livestock, fishery and tourism.
Sri Lanka is undergoing a massive demographic shift and significant economic development. A lower-middle income country with a population of 20.8 million people, a new era of progress has emerged in Sri Lanka, with its economy growing at an average of 6.4 percent per year between 2010 and 2015. Naturally, this has prompted greater levels of spending, leading the government to focus on much-needed infrastructure development in order to support continued growth.
But as the country changes, so do the needs of its people, and the services industry has been working hard to keep up. One sector showing rapid development is the Sri Lankan life insurance industry. Relatively young in the scheme of global insurance markets, the industry was liberalised in 1988, allowing private sector insurers to begin operations. Since then, it’s seen a significant number of players enter the market and no shortage of competition.
But despite the competitive market, life insurance uptake in Sri Lanka has remained relatively low: in 2011, the Insurance Board of Sri Lanka’s statistical review found 11.13 percent of the population had taken up a life insurance policy. By 2015, the figure had only grown to 13.45 percent.
With a shrinking labour force and growing inflation, retirement planning is becoming essential for the Sri Lankan economy
In light of this, the market has become a competitive field, with insurers fighting to win over an untapped customer base. World Finance had the opportunity to speak to Rajkumar Renganathan, Managing Director and CEO of Ceylinco Life Insurance – one of the major players in the market – about how the company plans to grow its customer base while continuing to assist in the development of Sri Lanka and its people.
Developing market
In 2009, Sri Lanka saw the conclusion of a 30-year civil war and entered a new era of economic development. Since then, the country has seen a shift from a predominately rural, agriculture-based economy to a more service-driven, urbanised economy.
There has also been a concerted government effort to develop the country’s infrastructure through projects such as the megapolis development plan and the Colombo Port city development project. These schemes have been designed to create more employment opportunities and grow national disposable incomes. The success of these measures can be seen by figures published by the World Bank in 2015, which show per capita income in the country has risen to $3,926 (see Fig 1).
Larger incomes tend to mean a greater need for life insurance protection. Ceylinco Life has a 25 percent market share based on gross written premiums in the country and covers approximately one out of three policyholders. Even so, the company has its sights set on further growth.
“Especially due to the fact that, as Sri Lanka is an underpenetrated market, there is vast potential for the life insurance industry to grow”, explained Renganathan. “Hence, the need to offer protection to an underpenetrated market such as ours is important.”
Renganathan said, despite the low penetration rates over the past few years, life insurance industry growth rates have been encouraging. Combined with the level of market activity and changing economic conditions in Sri Lanka, the future of the life insurance sector is bright.
The growing economy has also presented other opportunities. Renganathan explained: “Next, considering the changing demographics and ageing population, the need for retirement planning has become of paramount importance.”
Demographic challenges
A challenge facing many countries is an ageing population, which strains economies as workforces dwindle and more pressure is put on state services. Sri Lanka is no different: in 1971, the percentage of the population aged 60 years and above was 6.3 percent. By 2012, this figure had risen to 12.2 percent. If current trends continue, by the year 2041 as much as 24.8 percent of the population could be aged over 60. With a shrinking labour force and growing inflation, retirement planning is becoming essential.
Renganathan said that, being the market leader in Sri Lanka, Ceylinco Life Insurance has pioneered many different projects to keep people informed about how trends like this could affect them. Retirement Planning Month is an annual campaign designed to raise awareness of the importance of financial planning for the future. The campaign focuses on an area that has a significant impact on retirees and retirement planning – inflation. He explained: “This spurred the aptly themed ‘How Much is Enough?’ campaign, which encourages the public to think about the funds they have saved for retirement, and whether it would be sufficient for their retirement after inflation.” The campaign was conducted via both mass media and below-the-line channels, and was successful in raising significant awareness among the masses.
Another national campaign is annual life insurance week, designed to explain to people the value of life insurance on a nationwide scale. “Over 4,000 sales representatives are deployed island-wide to meet customers at their doorstep and communicate the importance of life insurance”, Renganathan said. “It is also supported by mass media awareness using real life case studies of life insurance beneficiaries.”
The campaigns have seen yearly successes since being launched, with thought-provoking themes used to educate the public about life insurance and retirement planning. “Ceylinco Life’s long-term vision is to take the message of life insurance to every Sri Lankan family”, Renganathan explained. “In line with our vision, Ceylinco Life invests in developing its sales force, which is our main strength in taking the message of life insurance to the public.”
Renganathan said Ceylinco Life Insurance has also invested in expanding the company’s branch network, with over 250 branches now open across Sri Lanka, in order to make life insurance more accessible to the public. However, this is not the only way the company is trying to connect with the public.
Given Sri Lanka’s developing economy and changing demographics, new technologies are now playing a much bigger role in the development of the life insurance sector. Ceylinco Life is modernising its workforce to take advantage of this opportunity and keep on top of changing expectations. Renganathan said most of Ceylinco Life’s agents are now equipped with a tablet or laptop to provide quick service to customers. In addition, premium payments can now be accepted via smart phones, and policies can now be sold over the internet as well.
“Claims processing and back-end operating systems are constantly being reviewed to increase the efficiency of operations”, Renganathan said. “We have seen competitors also using similar convenience-driven technology platforms.”
For the future, Ceylinco Life’s plans to increase manpower, maintain professionalism and minimise lapses through improved orphan policy management. An orphan insurance policy is one where the original policy agent is no longer active, possibly because they are no longer in the industry or have moved to another company. In this situation, managing orphaned policyholders effectively is important from both a customer service and administrative perspective.
Continuing social development
Corporate social responsibility has also become a priority for Ceylinco Life Insurance, particularly in the fields of health and education. While Sri Lanka has indeed seen significant economic and social development in recent years, many rural areas are still lagging behind. One such area is education in rural communities. Ceylinco Life has been working to improve education opportunities for the rural youth by providing them with access to high-quality infrastructure. The vast majority of children in Sri Lanka are dependent on free education provided by state schools. However, many schools struggle to maintain basic facilities, with state aid being the only way to keep the doors open in some rural areas.
“To date, Ceylinco Life’s schools development project has helped many rural schools by reconstructing classrooms and donating furniture and other basic amenities”, Renganathan said. “Classroom projects in 2015 were executed in the areas of Haldummulla, Trincomalee and Mannar, bringing the total to 64 to date.”
Healthcare is another service many rural regions are struggling to provide, and another area Ceylinco Life is working to improve. With the company’s Waidya Hamuwa project, the organisation is levering its spread of staff and personnel to reach those who need it most. It promotes good health in rural areas by providing access to free medical camps: these camps are conducted at more than 75 locations across the country and are led by a team of experienced doctors hired by Ceylinco Life.
While currently still growing, the Sri Lankan life insurance industry continues to develop to meet the ever-changing needs of its customers. Like all industries in Sri Lanka, the insurance sector’s next few years will be of great importance.
In recent times, Malaysia’s insurance industry has enjoyed steady expansion, growing at an average of 6.6 percent over the last four years. This expansion is projected to continue, with growth in the industry expected to be further driven by the country’s Economic Transformation Programme. As part of Malaysia’s National Transformation Programme, the Economic Transformation Programme aims to help Malaysia obtain ‘developed nation’ status by 2020.
Within the insurance industry, growth has also been led by the life insurance segment, which accounted for 65.9 percent of the industry’s gross written premiums. The non-life segment followed this with 29.6 percent, while the personal accident and health insurance segment achieved 4.5 percent.
World Finance spoke with Kamaludin Ahmad, CEO of Maybank Ageas Holding Berhad – a firm comprising Etiqa Insurance Berhad and Etiqa Takaful Berhad, one of Malaysia’s leading insurers – to find out more about the industry’s development.
The insurance industry is witnessing a breed of digital players encroaching into traditional business
What role has Etiqa played in shaping the insurance industry in Malaysia?
At Etiqa, we differentiate ourselves by humanising insurance and Takaful, prioritising people over policies. ‘The Etiqa way’ has been introduced to change the way our employees behave: we place people over policies and we keep our customers’ best interests at heart. Because we understand every individual’s needs are different, our products are designed to cater for him or her.
We also have the company philosophy of providing an ‘EPIC customer experience’. EPIC here is an acronym for four characteristics that describe our interaction with customers: empathy, professionalism, integrity and courage. An example of this is the utilisation of a proactive claims mechanism, deploying multiple channels to track Etiqa’s policyholders who may have been entitled to payment claims. We have a team who constantly monitor the mass media and social media, and once we identify a policyholder, we will reach out to them or their families.
In times of national crises, we reach out to ensure there is a quick way to expedite claims, in order to ease the burden on customers. This includes minimal documentation, appointment of additional adjusters and dedicated personnel to process claims. We ensure our customers enjoy hassle-free claims, with just one phone call needed for personal accidents and home incidents.
One of our key strategies to ensure the success and effectiveness of the distribution of insurance and Takaful products has been to understand emerging markets. Alongside this, we have focused on the internet as an emerging alternative distribution channel with significant potential for growth. We have made substantial inroads due to the younger generation’s expectation to fulfil their needs online. Indeed, Etiqa is one of the pioneers for direct sales through the internet.
What are main challenges facing the insurance market in Malaysia?
At present there is strong competition from established conventional players in terms of the branding and efficiency of distribution channels. Takaful competitors in particular are growing faster. Malaysia is also facing limited amounts of economic uncertainty, compounded by the fall in crude oil prices. Stemming from this global economic uncertainty is increased profit volatility.
The present low interest rate environment, coupled with the sluggish economic growth, has dampened investment returns – a key source of income for insurers. As a result, life insurers may move away from products with a pure investment and towards protection products. At the same time, in a frail economy with rising costs, consumers may not have deep pockets to spend on insurance. Therefore, insurance is going to be way down the list of what to purchase.
How important are new forms of technology to the insurance sector?
Today, everyone is talking about digitalisation. The insurance industry is witnessing a breed of digital players encroaching into traditional business. Our customers are also changing the way they interact with us, as they are more digitally savvy than ever before; they are becoming increasingly more sophisticated with their online requirements, hence increasing the complexity of their relationships and the specificity of their demands. Customers now have more access to information, experts and lower cost channels. This increases the pressure on insurance companies to deliver good value.
When it comes to our own utilisation of technology, Etiqa has been an early adopter of a customer-centric Master Data Management (MDM) solution, which aims to sharpen its competitive edge in Malaysia’s newly liberalised insurance market. The system provides Etiqa with better control of its data, enabling it to build a consolidated customer profile as it pursues new avenues of growth in a more open and competitive Malaysian insurance market.
We have one platform for accessing, integrating, cleansing and governing our customer data. This customer-centric view across general and life insurance lines of business plays a powerful role in helping Etiqa attract and retain insurance customers and grow revenues. We have enhanced our data analytics capabilities to draw greater insights into the needs and preferences of our customers. Armed with such valuable insights, our distribution channels are able to offer the right products to the customer at the most appropriate time, and to consistently deliver quality service.
How does Etiqa integrate new information channels and why are they important?
New information channels have allowed us to connect with customers on social media and through e-marketing and cross-selling. Social media’s growth has also allowed us to provide a consistent customer experience across channels where the choice of engagement lies with the customer. New information channels have also allowed us to digitalise the whole process of buying insurance from start to finish, making it an end-to-end paperless process.
Providing the public with education concerning insurance has also become easier with social media. We have been able to educate the general public particularly through online videos. For instance, Etiqa has launched Etiqapedia, a series of short, educational videos on basic insurance knowledge can be viewed on YouTube.
What edge does Etiqa have over other insurance firms?
The major benefit of Etiqa is that we have experience with all markets related to our industry. This means we are in the life insurance and general insurance, as well as in Takaful; we also service the retail market up to the corporate market. We underwrite small general insurance, such as travel insurance, in addition to insuring big businesses, such as the airlines, oil and gas businesses, and marine, aviation and transport risks.
As a true multichannel distributor, Etiqa has a strong agency force
On the life side, we are strong players in the individual market. We also have a leading position in employee benefits and medical coverage. In the Malaysian market, Etiqa is the only local company with such a wide business mix. This gives us stable growth, as well as stable profitability. Looking ahead, Etiqa will leverage on Maybank Group’s strength and build a wider distribution footprint for its products and services, as well as looking at alternative distribution channels.
As a true multichannel distributor, Etiqa has a strong agency force, comprising over 24,000 agents, 30 branches, sales offices and customer service centres located throughout Malaysia. We also have a wide bancassurance and bancatakaful distribution network, with more than 400 Maybank branches and agreements with professional third-party banks. Etiqa is also one of the pioneers for direct sales through the internet with online Motor Takaful and Maybank2U. Cooperatives, brokers, institutions and online banking services provide added accessibility and convenience to our customers.
How does Etiqa approach corporate social responsibility?
We aim to deliver long-term value for the community and ensure our sustainability efforts work in tandem with our economic activities. We are fully committed to giving back to the community through our corporate social responsibility/Corporate Zakat Responsibility (CZR) programmes.
In 2015, we built 46 permanent houses for Kelantan flood victims who lost their homes in the devastating floods that hit the state in December 2014. The construction project was the largest CZR project ever to be undertaken and fully financed by any Malaysian corporation for flood victims. A total of MYR 2.4m ($591,000) was allocated for the construction of 31 houses in Kampung Lebir, Gua Musang and 15 houses in Pahi, Kuala Krai. The construction of the 46 houses in Gua Musang and Kuala Krai was financed by Etiqa Takaful Berhad’s CZR fund and its customers’ ‘tabung amal jariah’ [charity fund], which was derived from the distribution of surplus contribution.
We have also contributed a total of MYR 808,000 ($119,000) of CZR and amal jariah funds to improve the quality of life and economic wellbeing of villagers living in Pekan and Kuantan. Out of these funds, MYR 340,000 ($83,800) was allocated to the construction of two bridges in Pekan and MYR 350,000 ($86,250) to build a dormitory for Rumah Anak Yatim Nur Iman in Kuantan. We also allocated MYR 100,000 ($24,650) to provide fishing nets for a fishing village in Tanjung Lumpur and various equipment to help small business owners obtain the resources they need to start their businesses. The remaining MYR 18,000 ($4,435) was used to provide basic food packs for 200 needy families.
During the financial crisis, Hungary’s insurance sector proved itself to be crisis-resistant. In another sign of its robustness, the market has shown impressive annual growth over the last three years: according to the Hungarian Insurers’ Association, in 2015 the number of total written premiums had increased by 2.2 percent in a non-inflationary environment.
Non-life insurance written premiums were the strongest basis of this growth, having increased 7.7 percent to HUF 427bn ($1.54bn). In parallel, written premiums of life insurance had decreased to HUF 441bn ($1.59bn), which can be explained by the 12 percent decline in single premium insurance, while the regular premium life insurance portfolio could still increase after a considerable period of time. Therefore, the adjusted written premium of the life insurance branch increased by 2.9 percent to HUF 294bn ($1.07bn), in which 10 percent of the single written premiums are included.
Revenue expansion in non-life insurance can be attributed to the fact that after a long period of time, the fierce premium competition in the field of compulsory third party liability motor insurance did not continue. This in turn has caused the written premiums of this line of business to increase from HUF 90bn ($320m) in 2014 to HUF 107bn ($390m) in 2015.
The mission of insurance companies is not scaremongering, but setting forth a realistic alternative
Nonetheless, average insurance premiums are still far below the premium level of neighbouring countries. Growth in regular life insurance premiums clearly resulted from pension insurances that are supported by state tax allowance, which saw the number of contracts exceed 135,000 last year alone. And so, although the market continues to show signs of stability, there is scope for considerable growth.
At this interesting point in the market’s advancement, World Finance had the opportunity to speak to Anett Pandurics, CEO of Hungarian Post Life Insurance Company, about Hungary’s highly robust insurance market, and her plans for the future.
How has insurance legislation changed, and how has this impacted the Hungarian market?
The national market has been preparing intensively for the transposition of EU regulations, the ever-changing conditions of Solvency II and the implementation of the IDD and PRIIPS rules. As a company, we have taken further steps forward as well. The cooperation developed under the aegis of the Association of the Hungarian Insurance Companies between the profession’s stakeholders and the Hungarian National Bank performing its supervisory role is a pioneering initiative.
Following negotiations, the Insurance Act has been amended in several stages: as of this year, the act now centrally regulates the minimum levels of investment and surrender values while limiting the commission rate payable for life insurance. To further strengthen insurance rules, it has also become mandatory to involve depositaries, and from next January only those units that have been invested by the insurance company may be shown.
An even more ambitious change is that, uniquely in Europe, the total expense ratio (TER) – which was introduced in 2010 by insurance undertakings for unit-linked life insurances as a self-regulating measure – remains applicable as a legislative provision. Since 2014, the TER level of pension insurances has been regulated by the Hungarian National Bank. In order to widen the scope, earlier this year the regulation ensuring cost transparency was extended to all life insurance policies.
Which aspects of the Hungarian insurance market currently show the most potential?
It is clear that life, pension and health insurance provide the best potential. Numerous studies show an increasing number of Hungarians are aware that old-age benefits cannot be financed solely from a state pension. According to a recent study by the Hungarian National Bank, the stability of the current pension system is ensured until 2030, meaning our ageing society will be confronted with increasingly substantial challenges in the subsequent years. In fact, people are already facing problems with the healthcare system. In this respect, the mission of insurance companies is not scaremongering, but setting forth a realistic alternative.
What are the most important trends in the Hungarian insurance market?
Our domestic economy has established an appropriate basis in recent years; as households and companies have started to regenerate assets, their demand for insuring these assets is increasing. Moreover, the number of people who take out travel insurance when going on vacation is continuously increasing year after year.
As the economy improves, the number of people travelling abroad increases as well. Consumer propensity to save has also taken a positive turn; the importance of self-provision is recognised more and more by the Hungarian population.
77%
Growth of Hungarian non-life insurance premiums in 2015
$1.54bn
Non-life insurance premiums’ current value
What other challenges must the sector be prepared for?
One of the sector’s key tasks is to create and continuously build trust. According to a recent market survey, only 27 percent of consumers explore the market unprompted. An even greater concern is that 48 percent of them do not understand products. This is a problem because many of them might have the wrong idea about a product they have bought, which may remain misunderstood for years. For this reason, insurance companies have a great responsibility in clearly communicating with the client both during and after a sale. As far as I am concerned, the Hungarian insurance sector and regulators of the Hungarian legal environment have developed cutting-edge solutions in this field. However, there is plenty more to be done in order to make it clear that different types of insurance have positive utilities at both micro and macro levels.
Although a low interest rate environment presents another challenge to insurance companies, it is also an important advantage, as insurance coverage may provide valuable help over such timeframes where the accumulated return on investment would not resolve the problem encountered in the given life situation. Besides, we have to overcome an important innovation challenge: insurance cannot be distributed to members of Generations Y and Z by traditional methods anymore. It is therefore crucial to rethink our products, services and sales solutions, and take advantage of digitalisation.
What is Post Insurance’s main focus in light of such opportunities and challenges?
Regarding our short-term plans, we understand current economic trends are more beneficial for the development of non-life insurances. We are witnessing organic market development in this field, where both written premiums and penetration are increasing, therefore we are investing significant professional resources into it. Although a stronger regulatory environment does not favour life insurance policies, we can find niche markets in terms of product portfolio and sales channels, in which our company may gain significant advantages.
Likewise, we benefit from our flexibility, which enables us to provide services that harmonise with the increasingly rapid pace of life and the habit of planning for the shorter term. Our overall aim is to have people consider Post Insurance – after a year or two, as well as after 10 years – as an easily accessible, reliable and useful partner in many walks of life, just as more than three million Hungarian customers have considered us for almost 1.5 decades.
How important is innovation to Post Insurance?
Innovation plays an increasingly important role in our customer service. We have made a major leap forward in our technology, having introduced a new customer service IT system that gives us the opportunity to make numerous developments in the future. It is fantastic for managing outgoing campaigns and, thanks to the knowledge-based call distribution, it directs the call to the most competent administrator for any given product, thereby shortening the administration process on both sides. As our customer service staff may receive requests regarding more than 30 different products or product modalities, these solutions ensure a smoother workflow.
In a move towards greater efficiency, our online sales system at post offices has become redundant, and it is now accessible through our integrated postal network at an even higher bandwidth than before. Besides developing our sales system and rationalising our mailing process, several back office processes were optimised last year. We now include an intelligent barcode on each and every insurance proposal and document; this means all documents received and converted into an electronic document are catalogued automatically.
Experiences gathered during the last year prove we have the opportunity to recreate our classic values in the online space as well, to conquer new target groups and, as a result, conquer new market segments through new services and products. In this context, we are working on providing a modern service to the customers of Generations Y and Z, who rarely visit post offices, thus enabling us to develop products that correspond to their needs.
How would you rate the company’s successes last year?
The 14 years of cooperation and a joint commitment with the Hungarian Post for continuous innovation brings us success year after year. As a result, this year we were voted the Best Life Insurance Company, Hungary for the third year in a row in the World Finance Global Insurance Awards. For this award, we have to thank all of the postal employees who welcome our clients day after day at around 2,500 points of sale in Hungary.
What are Post Insurance’s plans for the future?
At the end of August, we placed a new product on the market that offers a burial term life insurance to our postal clientele. We endeavour to add as many term life insurances to our product line as possible, as demand for self-provision and insuring owned assets is continuously increasing in Hungary’s improving economic environment.
We believe it is very important to enhance customer satisfaction with our services, whether at the signing of a contract, handling a claim or making payment at the termination of an investment product. When changing our current practices, we will continue to request feedback from our customers about experiences they had with our assistance service, and on any changes they would propose in order to make our administration practice as efficient as possible and to improve customer satisfaction.
Aside from standard loans that usually start at $1,000 and can reach up to around $20,000, group loans are also available for those people at the very bottom of the pyramid. Known as ‘village banks’, each participant within a group acts as a guarantor for one another’s loans.
Yunus was one of the first to speak out against Banco Compartamos’s IPO, arguing that turning the company into a for-profit organisation went against the core objective of microfinance – namely, to reduce poverty. Compartamos, on the other hand, contended that, by becoming profitable, it could further extend its reach to poor communities in Mexico.
“We have found that property in the township is attractive both to residents and investors alike due to Gading Serpong’s fast return on investment”, Ervan Adi Nugroho, President Director of Paramount Enterprise, told World Finance. “In order to continue growth amid tight competition in Indonesia’s property industry, Paramount Land prioritises constant innovation. For the last couple of years, we have provided our customers with products that are not only acceptable or affordable, but meet their needs as well. We provide a wide variety of designs, layouts, façades, colours and prices.
The new government demonstrated its rational approach to economic policy when it formed the financial regulatory department, which plays a secretarial role for the newly restructured Insurance Business Regulatory Board under the Ministry of Finance. The members of the new regulatory board are now an amalgamation of retired insurance officials who are working in private insurance companies, people holding high academic degrees in insurance, and also government officials from the auditor general office and other departments. This certainly shows the current government is taking meticulous steps to support all the sectors with existing subject knowledge and the right kind of local expertise.
