Feature: Fiji’s Low Insurance Rate

Oct. 3, 2017, 6:18 a.m.

IT’S no secret that Fijians are facing a widespread shortage of housing, which has often been compounded by popular notions that property is unaffordable and overpriced. The flow-on effects of these issues are varied, not to mention economically detrimental – most relevantly, low property ownership rates and a consequentially low uptake of property insurance.

This rate currently sits at only 12 per cent of Fiji’s adult population – a figure so low that the shortage in insurance interest even resulted in the launch of a consolidated 6-week campaign in October to raise local awareness and understanding of this industry. This campaign is bolstered by a goal of raising this paltry figure to 25 per cent insurance cover by 2020.

The fact that most Fijians lack any form of insurance cover to assist with unforeseen financial burdens arising from accidents or disasters has also urged the Insurance Council of Fiji to consider a review of cyclone certification requirements for locals. This follows the devastating homelessness of an estimated 40,000 Fijians that was caused by Tropical Cyclone in February 2016, and the palpable lack of insured properties that was highlighted in the devastating aftermath.

As the Fijian Government dispersed some $88 million to cover damage faced by uninsured homeowners in affected areas, calls were made by Heads of Government to strengthen regulatory provisions to protect locals from future crises and for a reform of the insurance industry, which has often been viewed as luxury service only available to those wealthy enough to cover the cost.

“There has been too great a focus by our insurers to offer coverage to urban communities and tourism-related infrastructure, and our rural and maritime communities are not being given the options for insurance coverage that they deserve,” Prime Minister Voreqe Bainimarama stated at the launch of the government’s post-Winston ‘Homes for Help’ initiative.

For their part, however, people aren’t only skipping insurance because they think it’s too costly, but also due to a lack of personal awareness, as indicated by the results of the 2015 National Financial Services Demand Side Survey Report.

The top three reasons for not taking out insurance coverage, per survey respondents, were: a belief that they did not need coverage; a lack of understanding of what insurance is or how it works; and a lack of financial means to cover insurance costs.

As highlighted by Reserve Bank of Fiji Governor, Barry Whiteside, the first two reasons are likely attributed to a lack of understanding or knowledge, factors that can hopefully be changed through increased public awareness and education about insurance brought by the 6-week campaign.

However, addressing the latter factor is slightly more complex. Insurance companies have been urged to provide packages more suitable to the socio-economic needs of locals, and part of the financial inclusion segment of the 6-week awareness campaign concentrated on providing insurance services to marginalized and low-income communities.

The Insurance Council of Fiji’s new chairperson, Sarah Jane Wilde acknowledged that the national diagnostic exercise helped to understand the formal usage of certain basic financial services such as insurance, which is higher in urban areas (17 percent) compared to rural areas (7 percent).

“It also showed that it was substantially higher amongst those in the top 2 income quintiles than among adults in the bottom 3 income quintiles,” she said.

Fiji’s Housing Authority has also weighed in on issues arising from restrictive insurance policies, suggesting that the limited number of local insurance providers leaves little room for competitors to negotiate lower premiums and thus affordable policies tailored to low-income target markets.

As pointed out by the HA, customers sometimes can’t afford further increases in their repayments after natural disasters and mandatory engineering certification financially strain its low-income target market, for which a substantial proportion cannot upgrade certification after every seven years, which potentially disqualifies them from obtaining proper cyclone cover.

This is an area the ICF is considering.

“We are currently reviewing this process with the Fiji Institute of Engineers to understand if we can make it both easier and more affordable to get the engineer certification,” Wilde confirmed.

The ICF has added that country challenges include an inconsistent implementation and policing of the National Building Code, as well as the constant threat of tropical cyclones for at least half of each year.

“Insurance penetration is an issue; only 18,000 out of the 184,000 households in Fiji are insured… less than 10 percent of households are insured,” as pointed out by Lolesh Sharma, Chairman of the Insurance Council during a property insurance seminar in August.

According to Sharma, a holistic approach to insurance reform would necessarily include the introduction of entry level products to accustom the uninsured to the benefits of insurance at an affordable cost. Such a product would be administered as a collaborative project of seven local insurance companies, employers, the Fiji Revenue & Customs Authority and United Nations Capital Development Fund, supported by the Pacific Financial Inclusion Program.

This inclusive insurance bundled product would charge $50 for $10,000 worth of cover, including $3000 for fire and earthquakes, $3000 for personal accidents, $1000 for health insurance and $3000 for life and funeral insurance. However, the green light for such an offer has not yet been given.

On the part of insurance agents, the Consumer Council of Fiji has expressed its desire of tougher monitoring and the introduction of conduct standards, as well as more industry accessibility, expressing a desire to see a broad range of property insurance products in the market to offer a wide array of choices to consumers.

According to industry regulators RBF’s Annual Insurance Report 2015, which was published prior to TC Winston, the combined gross premium income of the Fijian insurance industry declined by 2.9 per cent to $290.3 million in 2015, after five years of consecutive growth. Life insurance policies recorded the largest reduction in gross premiums, falling by 3.1 per cent to $123.9 million, which was attributed to the declining trend in premiums received.

However, total assets of the Fijian insurance industry grew by 7.8 percent to $1.5 billion due to accumulated assets as per the 2015 Report, with the life insurance industry’s total assets increasing by $84.8 million to an all-time high of $1.1 billion. This growth is likely due to rising investments in government securities, land and buildings, as well as shares in related persons.

The question remains as to why many Fijians continue to solely rely on State assistance and Fiji National Provident Fund savings despite the availability of insurance policies to cushion unforeseen circumstances. As survey numbers prove, awareness is a looming issue.

“When asked why people don’t take up insurance 40 percent said they didn’t need it, 30 percent said the price was prohibitive and 25 percent said they don’t know what it is,” Wilde said of the National Demand Survey.

“It is likely that the 40 percent that said they didn’t need it don’t understand the benefits of insurance. What this means is that 65 percent don’t have insurance due to lack of awareness about insurance, either in understanding the benefits that it provides or what it actually is.”

This information, Wilde highlighted, presents the insurance industry with both an opportunity and challenge in finding ways to educate people on insurance whilst also providing products that are relevant ∎

Subscribe to our Newsletter to receive news and updates about Fiji Real Estate: