Papua New Guinea

Principal Legislation

Papua New Guinea’s insurance market is governed by a series of key legislative instruments:

• Insurance Act 1995 (as amended by the Insurance (Amendment) Act 1996 and the Insurance (Amendment) Act 1998) regulates the general (non-life) insurance sector, establishing licensing, solvency, and market conduct standards.
• Life Insurance Act 2000 provides the framework for life insurance operations, including capital requirements and policyholder protections.
• Motor Vehicles (Third Party Insurance) Act 1995 mandates compulsory third-party motor liability insurance to protect victims of road traffic accidents.
• Workers’ Compensation Act 1978 requires employers to insure their liability for workplace injuries or death of employees, ensuring minimum benefits and compensation standards.

These Acts collectively establish the foundation for regulating Papua New Guinea’s insurance sector, ensuring policyholder protection and market integrity.

Supervision

Papua New Guinea maintains a dual regulatory structure for its insurance industry, with separate oversight for non-life and life insurance:

• The Office of the Insurance Commissioner (OIC), under the Ministry of Finance and Treasury, is responsible for supervising the non-life insurance sector. This includes licensing, solvency monitoring, and ensuring regulatory compliance for general insurers and intermediaries.
• The Financial Systems Supervision Department of the Bank of Papua New Guinea oversees the life insurance and superannuation sectors, focusing on financial soundness, governance, and consumer protection.

This division allows each authority to apply regulatory standards tailored to the specific characteristics of their respective markets.

Admitted/Non‑Admitted

In PNG, non‑admitted insurance is generally prohibited. Insurance risks arising in-country must be placed with locally licensed insurers.

However, limited project-specific exemptions may apply. For instance, certain contractors and sub-contractors working on the PNG LNG project have been granted exemptions excluding workers’ compensation allowing them to insure offshore under the Insurance Act 1995.

The Office of the Insurance Commissioner (OIC) grants these exemptions when the local market lacks sufficient capacity, frequently triggered by large-scale or specialized projects.

Firms seeking such exemptions must submit formal applications, including justification on insurer capacity, taxation arrangements for offshore insurers, and compliance with foreign exchange regulations.

Compulsory Classes

• Motor third party bodily injury.
• Workers’ compensation (occupational accident insurance).
• Directors’ and Officers’ liability insurance (D&O) for directors of superannuation funds.
• Professional indemnity for insurance brokers and loss adjusters.

State Involvement

Papua New Guinea’s insurance market involves minimal direct state participation, with no state-owned life insurance companies in operation.

The government-owned Motor Vehicle Insurance Limited (MVIL) holds a legislative monopoly over compulsory motor third-party liability insurance. MVIL was established under the Motor Vehicles (Third Party Insurance) Act 1995 (amended in 1998 and 2021) and manages both CTP coverage and vehicle registration/licensing functions.

All other life and general insurance classes are served by private-sector insurers, with no state insurance entities maintaining presence outside MVIL.

Tariff Classes

Papua New Guinea operates mostly as a free-rated insurance market, with insurers setting their own premiums based on underwriting criteria. However, there is one regulated exception: Motor Third-Party Bodily Injury Insurance. This class is governed by a compulsory tariff. Premium rates and benefits are fixed by law and managed by Motor Vehicle Insurance Limited (MVIL), the exclusive provider. All other insurance products including property, liability, marine, and life are not subject to statutory tariffs and are competitively priced.

Premium Taxes and Charges

In Papua New Guinea, most non-life insurance policies are subject to a 10% Value Added Tax (VAT), which is payable by the policyholder. However, travel insurance, export cargo insurance, and health insurance are exempt from this tax or zero-rated under current tax regulations.

Additionally, a 1% supervisory levy on the gross premium is applied to all non-life policies. This levy, also paid by the policyholder, is collected by the Office of the Insurance Commissioner (OIC) to fund regulatory oversight and administration.

For Workers’ Compensation insurance, an additional 14% levy on gross premium is imposed. This charge is payable by the policyholder directly to the Ministry for Labour and Industrial Relations and is separate from other premium-related taxes.

These charges must be factored into the total cost of insurance and disclosed clearly to policyholders at the time of quotation and issuance.

Policy Language

The policy language is English.

Local insurers are required under Article 36 of the Insurance Act to offer all outward reinsurance, both treaty and facultative to Pacific Re before seeking overseas markets. Approval from the Office of the Insurance Commissioner (OIC) is also mandatory for implementing treaty programmes.

There is little development in multi-year or multi-class reinsurance structures, and proportional treaty retention is uncommon.

There is only one locally based reinsurer in the market. It was established in 1996 and started operating in 1997. The company writes non-life reinsurance business only in the local market and in countries in the Pacific Ocean.

Permission to remit reinsurance premiums outside the country is only granted upon satisfaction that the subject reinsurance conforms with regulations (including Section 36 of the Insurance Act 1995, which mandates the priority offering of all outwards treaty and facultative reinsurance to the local reinsurance company).

There are no local companies transacting life reinsurance.

Distribution patterns in Papua New Guinea’s insurance market remains relatively unchanged in recent years.

In the life insurance sector, brokers are regulated under the Life Insurance Act 2000, although there are currently no licensed brokers operating in this segment. Life insurers typically do not use dedicated sales staff, instead relying on agency managers to develop and support agent networks. In practice, senior management often takes a direct role in securing larger cases, given the market’s small scale.

While agents previously played a more prominent role, particularly in selling endowment products although they are no longer considered dominant in the overall distribution landscape.

In the non-life sector, distribution continues to follow traditional models, with direct insurer relationships, agents, and some regional branches serving clients. No major shifts in channel structure have occurred in recent years.

Papua New Guinea lies on the boundary of the Pacific and Australia tectonic plates, making it prone to earthquakes. A magnitude 7.1 quake struck East Sepik in March 2024, though insured losses were limited due to low insurance coverage in remote areas. Earthquake cover is typically included as an extension to fire policies.

Seasonal floods and landslides, especially from March to May, are common. In 2024, severe flooding in Enga Province caused over 2,000 casualties and major infrastructure damage most of which was uninsured. Windstorms, particularly in areas like Milne Bay, are generally covered under property policies.

Overall insurance penetration is below 1% of GDP, and most catastrophe risks are uninsured. However, initiatives like parametric earthquake cover for national infrastructure reflect growing interest in alternative risk solutions.