Development of the Unit-linked insurance product in Kazakhstan

Abstract

Unit-linked products (ULPs) serve as a pivotal component in the global life insurance sector, amalgamating individual investment strategies with policy protection under a unified plan, thus stimulating long-term savings, particularly for retirement objectives. Nonetheless, ULP adoption in Central Asia remains incipient, hindered by challenges in financial literacy and economic adversities.
Endowment life insurance programs coupled with mutual fund investments are prevalent in Europe, constituting a substantial portion of insurance premiums. Internationally recognized as Unit-Linked products, they have propelled growth in the life insurance sectors of Eastern Europe and Asia, gradually making inroads into Kazakhstan. Unit-Linked products empower policyholders to partake in insurers' investment returns while assuming a portion of investment risks. In the medium term, such products can bolster Kazakhstan's life insurance market by enhancing its appeal to potential buyers and fostering growth in long-term insurance.
Endowment life insurance offers prolonged insurance protection alongside savings accumulation, yet it presents a notable drawback—limited returns upon term completion. On average, the profitability of insurance savings programs lags behind inflation rates and bank deposit yields due to conservative allocation of insurance reserves. Consequently, clients may exhibit reluctance towards long-term accumulation under such conditions.
Mutual funds present a solution for insurance companies, enabling clients to not only receive insurance services on long-term investments but also achieve returns comparable to corporate bonds and bank deposits. In Kazakhstan, with its burgeoning economy and stock market, the amalgamation of life insurance companies and mutual funds presents attractive prospects for investment and insurance realms.