When the State Requires You to Hold a Policy

Compulsory insurance and the guarantee of insurance payments in Kazakhstan

1. Why a guarantee system is needed
2. The original interview
3. What has changed since publication
4. When the right to a guarantee payment may arise
5. What a client should do if the insurer has problems
6. Which documents you may need

Why a guarantee system is needed

A compulsory policy is not taken out at the client's own wish, so the state establishes additional mechanisms to keep the market stable. Insurance companies take part in the system for the guaranteed classes and pay contributions, while the Fund performs the functions provided by law. A guarantee payment is not a universal compensation under any contract: the right depends on the line of insurance, the insurer's status and the specific ground.

The original interview

Since it was established in August 2003, the Insurance Payments Guarantee Fund (IPGF) has paid out more than 860 million tenge to Kazakhstani citizens. This includes compensation of about 160 million tenge transferred to the accounts of insurance companies for 22,055 re-issued insurance policies that were in force when the insurance company "Altyn Polis" was liquidated.

Unlike the State Deposit Insurance Fund, the IPGF has no state shareholder, although it was originally created by the National Bank. Its shareholders are insurance companies, yet its task is the same: to assume the obligations of insurers in the event of their compulsory liquidation. Since 1 October 2008 the IPGF has had an additional function: the fund pays compensation to persons who suffered particularly grave bodily harm caused by a vehicle owner who left the scene of a traffic accident, or to their families if the victims died. Unfortunately, such cases are not rare. According to the fund, in 2010 there were 175 road accidents in which the drivers fled the scene. In other years the number of such cases reached 750.

But victims and their families often did not know that at such a bitter moment they could receive help from the fund. The statistics confirm this: for such insured events the IPGF paid out only 1.5 million tenge, although the fund's capacity is much greater. That is why we constantly carry out explanatory work and tell people to turn to us in such situations, says Kulbanu Mussayeva, Chief Executive Officer of the JSC "Insurance Payments Guarantee Fund".

Let us talk to her in more detail about this very important function of the fund and its other tasks.

...May such an insured event pass us all by

– Before the questions on this topic, I would like to wish that such insured events pass us all by!

– Unfortunately, the statistics of tragic road accidents are merciless... So we understand that even the relatively small payments of the fund are very much needed by victims in such situations, and that this social function of the IPGF is extremely important for people. We are helped in this by law enforcement bodies and by the Ministry of Health, whose institutions distribute our leaflets and notices in city and regional hospitals, trauma centres, polyclinics and police bodies across the country. Our information is also spread by the media: the press, radio and television. I think all Kazakhstanis should know that they can count on the fund's help in these cases.

– Kulbanu Serikhazhievna, do I understand correctly that these funds are contributed by all insurance organisations and can be paid to all victims without exception, even if they are not insured?

– Yes, this additional fund is formed through compulsory contributions from insurance organisations. Contributions are made by all 27 insurance companies that are participants in the insurance payments guarantee system. At the same time, for payments to victims who are citizens of Kazakhstan it does not matter whether they have insurance or not. An accident insurance contract will be required for foreign citizens and stateless persons. If a person has suffered harm, he or she (or relatives) applies to the fund and receives payments in the amounts established by law: 250 MCI for compensation of harm to life; 150 MCI for compensation of grave harm to health; and 15 MCI for funeral expenses. Let me remind you that for the current financial year one MCI is set at 1,512 tenge. You can calculate what the payment amounts are in each of these cases. Let me also remind you that the MCI is revised every year. Applications for payments are accepted by the fund at the address: Almaty, Koktem-3 microdistrict, building 21. More detailed information is available on our website: www.fgsv.kz. If the person at fault in a road accident has fled

– So that readers better understand when they can apply to the fund, let us look at specific examples. The other day in our neighbourhood a young man with no licence, no vehicle documents and under the influence of alcohol hit two female students. Both are now in hospital with serious injuries, and the person at fault has been detained. Can the victims apply to you?

– If the person at fault is known, then it is no longer our case. Our insured event is where the person at fault in the accident is unknown and has fled the scene. We pay the victims the amounts mentioned above. If the person at fault is later identified and found, the law enforcement bodies inform us, and we carry out recourse work on that case. That is, we bring a claim against the person at fault for the amount we paid to the victim.

– And if the person at fault is not detained or identified, will "recourse" not later be directed at the victims?

– Under no circumstances! The victims and their families do not return a single tiyn to the fund. A recourse claim is directed only at the person responsible for the accident. At present the number of persons who have applied for payments and are entitled to them under the law is small compared with the number of such insured events — only a few people. Citizens of the country do apply to the fund, both orally and officially. However, we particularly note that such payments to victims who sustained injuries incompatible with life are made by the fund only to persons who meet the requirements of Article 940 of the Civil Code of the Republic of Kazakhstan: persons unable to work who were dependants of the deceased or were entitled to receive maintenance from him by the day of his death; a child of the deceased born after his death; and also one of the parents, the spouse or another family member, regardless of ability to work, who does not work and is occupied with caring for the deceased's dependent children, grandchildren, brothers and sisters who are under fourteen or who, although older, need outside care for health reasons according to the conclusion of medical bodies. I can cite two tragic cases from our practice in which the fund paid compensation to relatives of the deceased. In the first, an unidentified car hit a serviceman who was crossing the road on his way to work. He left behind a small child and a wife who was on maternity leave. Another tragedy: a pensioner, a participant of the Great Patriotic War, suffered grave harm to her health as a result of a road accident. The persons at fault were not identified. We paid full compensation, and there is no question of any repayment of funds to the fund.

– How quickly are decisions made in such cases and what must victims submit?

– First of all, a conclusion of a forensic medical examination confirming grave harm or death must be submitted. Payments are provided only for grave bodily harm and death. The full set of documents also includes: an application (in free form) for compensation of harm; a document from the internal affairs bodies confirming the fact that the insured event itself occurred, that is, that the person who left the scene of the accident and is responsible for it has not been identified. You will need a copy of the conclusion of the medical institution that provided the victim with medical care in connection with the grave harm to health caused by the accident, indicating the nature of the injuries and disabilities sustained, the diagnosis and the period of temporary incapacity for work. You must also provide a notarised copy of the victim's death certificate (in the event of death); a document confirming the person's right to compensation for harm in the event of a tragic outcome; documents or copies confirming funeral expenses; a copy of the applicant's identity document and bank details for the transfer of funds. Once the full set of documents has been collected, the fund decides within thirty working days whether to pay or to refuse. The payment itself is made by the fund within five working days of the decision. Do not tempt fate with lies

– What may be grounds for refusing payment?

– First, actions of the victim recognised as intentional crimes or administrative offences that are causally connected with the traffic accident. Applying to the fund more than one year after the accident in which the person at fault left the scene. If the accident occurred as a result of force majeure, that is, extraordinary and unavoidable circumstances under the given conditions, such as the effects of a nuclear explosion, radiation or radioactive contamination, military action, civil war, assemblies, rallies, marches, pickets and demonstrations, mass disorder or strikes. Submitting an incomplete set of documents or unreliable documents is also grounds for refusal.

When the fund steps in

– The fund's activity is little known to the wider public. Apparently because the insurance market has given the fund few reasons to step in. Nevertheless, everyone needs to know about the IPGF's powers, in order to understand where, why and with what to apply. For example, many believe that the fund can help when an insurance contract has been concluded but the insurer finds reasons not to pay, or when the insurance company itself has declared bankruptcy?

– You are right, people learn about us when they face a real problem with insurance. So let me explain that at present the insurance payments guarantee system covers three types of compulsory insurance that affect the property interests of broad sections of the population. These are compulsory third-party liability insurance of vehicle owners, of carriers to passengers, and of tour operators and travel agents.

The fund's main mission is to protect the interests of the insured when their insurance company is compulsorily liquidated. That is, we take no part in any of the cases you listed: there are other mechanisms for resolving such disputes. The fund is responsible only for compulsory lines of insurance and only in the event of compulsory bankruptcy of an insurance company.

For example, drivers are obliged to buy insurance to protect themselves and their passengers. When an accident occurs, the insurer pays out. If the insurance company that sold the policy is compulsorily closed, responsibility for protecting people's interests passes to the fund.

This has already happened four times in our history: we answered for the obligations of the compulsorily liquidated joint-stock companies "Valyut-Tranzit Polis", "Altyn Polis" (with a 25% share of the motor liability market), "NASKO-Kazakhstan" and "Premier Insurance". The fund successfully made guarantee payments to the creditors of these compulsorily liquidated companies and continues payments to the creditors of "Altyn Polis" and "Premier Insurance". More than 3,700 applications were received from the creditors of these insurance organisations. In total, over our history we have re-issued more than 22 thousand insurance policies that were in force when the insurance company was liquidated. That is, the 23 insurance companies operating on the market divided all the clients of the liquidated insurers among themselves.

This approach and mechanism are justified: if the state obliges people to have insurance, it also creates additional protection — the guarantee institution. That is why the fund was first set up by the National Bank, and only after the National Bank of Kazakhstan left did the insurance companies themselves become its founders.

The fund's further plans are to cover all compulsory lines of insurance, voluntary property insurance and life insurance. The system is developing gradually, and from 1 January 2012 it will additionally include accumulative insurance for pension payments and annuity payments, which relate to compulsory insurance of employees against accidents. I should note that in developed countries all lines of insurance are likewise guaranteed by similar funds.

The fund will answer for the bankrupt

– If the regulator has launched bankruptcy proceedings against an insurance company, what should its client do?

– First, the regulatory body decides to revoke the licence. Then the documents are submitted to court, and if the court decides to liquidate the company, only after that does our work begin. For a certain time the fund conducts information and explanatory work: it issues publications and notices and organises press conferences. At the same time we review the financial statements of the company being liquidated, from which we see the picture in that company and how much must be paid for insured events that have occurred. Within two months after the court decision we accept applications from the company's clients. The liquidation commission determines how much the fund must pay under policies with an insured event that has occurred. For policies still in force, work is done to transfer the insurance portfolio to other insurance companies, to which we transfer funds once the liquidation procedures are complete. So insured citizens can be completely confident that within the period set by law they will receive an insurance payment or that another company will assume the obligation to insure them.

– Let us consider cases where, for various reasons, people are not informed about the liquidation of their company.

– Such cases are unavoidable. That is why two months are given for accepting applications for insured events that have occurred. If the deadline is missed, one can later apply to the liquidation commission. In accordance with the order of priority established by law, such persons are creditors and can count on payments in line with their priority. But that is already a question for the liquidation commission.

"Sleeping creditors": no limitation period

– According to your statistics, are there many who did not apply?

– There is a category of clients who submitted applications but did not provide the necessary documents. They make up about 15% of the total number of applications submitted. We call them "sleeping creditors". There is no limitation period for these applications. The main thing is to have the application recorded. I would also note that for clients who were in a road accident during those two months — between the court decision and the transfer of the policies to another insurance company — the law requires us to pay the insurance companies acting as agents for the damage assessment in the amount of 7 MCI and to pay the insurance payment itself according to the assessment report.

– A practical question: the fund's head office is located in the National Bank building, but are there other offices? Where should people go if necessary?

– For the convenience of clients of insurers being liquidated, our staff are based at the head office while applications are being accepted. An application can also be sent by post. In the case of "Altyn Polis" and "Premier Insurance", for example, we were in the same building as the liquidation commissions. In addition, the insurance companies and their branch networks acted as agents and also accepted applications for onward transmission to the fund, and advised people. Even so, most creditors applied to the fund themselves by post.

– Are the clients of insurers in liquidation always satisfied with the decisions made?

– No. In our short history there are already about 300 court cases that we are handling because people disagree with the assessment amount. People who missed the two-month deadline also go to court.

– And how were the issues resolved in the courts?

– In different ways; each individual case must be considered separately. But if we understand that we are right, we defend our point of view up to the last instance.

– Are all insurance companies participants in the guarantee fund?

– All insurance companies that sell policies in the three types of compulsory insurance must be participants in the fund. Without participation in the fund they are not issued a licence. Companies that were already engaged in this type of insurance before the fund was created all joined the fund automatically. New insurance companies wishing to engage in this type of insurance must conclude an agreement with us before they obtain a licence from the regulator. The fund participation agreement is attached to the list of documents required for a licence from the Financial Supervision Committee. At present all companies engaged in this type of insurance are not only participants in the fund but also its shareholders.

– The National Bank sold its entire shareholding in the fund. That raises the question of supervision of the IPGF: how does the state control it?

– Indeed, in 2008 the National Bank sold its entire shareholding to the insurance companies. We are registered as a joint-stock company, but we are a non-profit organisation, that is, we do not pursue profit. Our task is to protect the interests of creditors in the event of compulsory liquidation. Creditors are both individuals and legal entities that bought policies. The Financial Supervision Committee of the National Bank of Kazakhstan is the fund's authorised body. Moreover, a representative of the Financial Supervision Committee of the National Bank of Kazakhstan sits on the fund's board of directors. I would also add that the question of the National Bank returning to the shareholders is currently under consideration.

What has changed since publication

The insurance system has gone digital: compulsory contracts can be issued electronically, information is kept in a single database, and for compulsory classes online payment claims are available. The list of guaranteed lines, the procedure for dealing with clients, the regulator's competence and the procedures applied when an insurer ceases operations have all changed.

Therefore the old references to a specific two-month period, to applications being accepted only at an office, or to a particular number of participating companies cannot be applied without checking. If you have problems with an insurer, first establish its current status and find the official announcement of the regulator or the Fund.

When the right to a guarantee payment may arise

The main ground is the compulsory termination of the activity of a system participant in a guaranteed line of insurance. The Fund acts within the limits of the law and accepts creditors' claims under the established procedure. A separate function concerns compensation for harm to the life and health of victims of a traffic accident where the responsible person has fled and has not been identified.

These grounds must not be confused. If the insurer is operating and holds a licence, an ordinary claim for an insurance payment is addressed to it. If the licence has been revoked, the procedure depends on the stage of the process, the type of contract and official decisions.

What a client should do if the insurer has problems

1. Check the status. Use the official information of the Agency for Regulation and Development of the Financial Market and the Fund.
2. Keep the contract. The electronic policy, receipts, the notice of the event and correspondence support your claim.
3. Establish the ground. Find out whether the contract belongs to a guaranteed line and who accepts the documents.
4. Assemble the full set. The list depends on the line of insurance and the circumstances of the event.
5. Obtain confirmation. Keep the date of submission, the list of documents and the registration number.
6. Follow official announcements. Do not rely on information from social networks or unofficial mailings alone.

Which documents you may need

• an identity document, or the legal entity's documents;
• details of the insurance contract and proof of payment;
• an application for the insured event or the guarantee payment;
• documents from competent authorities on the circumstances of the event;
• proof of the amount of harm and of the beneficiary's right;
• bank details;
• a power of attorney for a representative, if necessary.

The exact list should be taken from the law in force and from the official instruction for the specific ground. Submitting an incomplete or unreliable set may delay consideration.

Guarantee payment and insurance payment

An insurance payment is made by an operating insurer under the contract. A guarantee payment is made by the Fund when a ground provided by law arises. The amount, limits and procedure may differ; holding a policy does not in itself mean an automatic right to a payment from the Fund.

If the client disagrees with the decision

Request a written reasoned decision and check the procedure for appealing it. For an ordinary dispute with an operating insurance company, a complaint to the insurance ombudsman is used; since 1 January 2024 this is a mandatory pre-trial stage before going to court in an insurance dispute. In a situation involving the Fund and a liquidation procedure, special rules apply, so it is important to identify the correct respondent and the ground of the claim.

How to take out a compulsory policy safely

• check the licence and the exact name of the insurer;
• do not transfer payment to the personal accounts of intermediaries;
• verify the electronic policy in an available official system;
• keep the contract, the rules and proof of payment;
• provide accurate information about the insured object and the policyholder;
• when an event occurs, use the insurer's official channel.

Conclusion

The compulsory nature of a policy goes hand in hand with state regulation and, for established classes, a guarantee system. It is important for the client to understand who bears the obligation under the contract, whether the line of insurance is among the guaranteed ones, and which procedure applies on the date of the claim.

This material is for information only. The historical interview is preserved without abridgement; practical steps should be checked against current official sources.