Officials have firmed up the timeline for when foreign insurers will be allowed to enter the Myanmar market, a move that is expected to boost competition and lift penetration rates.
On August 28 representatives of the Insurance Business Regulatory Board (IBRB) announced that overseas insurance companies would be allowed to formally enter the market at some point during FY 2018/19, which begins on October 1.
“We are planning to allow foreigners to participate in the domestic insurance market,” U Zaw Naing, secretary of the IBRB, told local media in August. “We will hire international consultants to help us screen and review foreign insurance providers before permitting them to compete in the market.”
In addition to establishing the screening and approval process, the IBRB has yet to lay out the regulatory requirements for overseas entrants, including whether they will be expected to form a working relationship with an existing domestic underwriter or operate as a stand-alone entity.
However, clarification could be forthcoming. A new piece of legislation, updating the 1996 Insurance Business Law has been drafted by international development agency USAID and submitted to the Financial Regulatory Department (FRD). It is important that the new insurance business law is finalised and passed before market liberalisation takes place, according to U Myo Min Thu, managing director of AYA Myanmar Insurance, as it will set the appropriate governance for all players operating in the industry. The new law is currently being reviewed by the FRD, which is also receiving comments from local private players.
Strong appetite in underdeveloped market
With the lowest penetration rates in ASEAN – life insurance premiums as a percentage of GDP are just 0.01%, while non-life stands at around 0.07% – and economic growth accelerating as a result of liberalisation in other sectors, the Myanmar market presents a significant growth opportunity for overseas insurers
There is also a lot of space in the market for new players. A total of 12 private sector firms currently operate in the country, in addition to the national insurance provider, Myanma Insurance, which accounts for approximately 45% of all gross written premium.
In addition to increasing competition for local underwriters, many of which do not have capital resources comparable to those of their overseas rivals, the presence of foreign operators will likely deepen the pool of professional staff in Myanmar, and boost technical and knowledge transfer.
In anticipation of the upcoming sector liberalisation, several international firms have already moved to establish a presence in the country. As of early 2018, 24 foreign insurers had set up representative offices: three of these – all Japanese underwriters – are allowed to sell insurance within the Thilawa Special Economic Zone.
However, while the market holds potential, foreign operators will face some of the same challenges experienced by domestic operators. The majority of the 53.6m-strong population is unbanked, which has hindered efforts to increase personal insurance coverage, and there is a general lack of education about the benefits of insurance.
International insurers likely to expand product range
In addition to increasing penetration rates and knowledge transfer, the entrance of foreign players is expected to drive product expansion. Private sector firms currently offer coverage in 13 areas, including fire, vehicle and general. By contrast, Myanma Insurance has 26 products, including coverage of specialised areas such as for government employees, the armed services and maritime trade.
The opening up of the sector will likely see this composition change, and expansion is already projected in certain lines.“Of the different insurance policies available in the market, comprehensive motor insurance will be the first to experience growth in the coming years followed by property insurance,” Tatsuro Ichikawa, general manager of Mitsui Insurance, told OBG.
Sector to launch pilot livestock insurance programme
A key sector of the economy that could soon see expanded coverage is agriculture. Myanma Insurance announced in late August that it was working with the Ministry of Agriculture, Livestock and Irrigation, Singapore-based InfoCorp Technologies and local holding firm RGK+Z&A Group to develop a pilot livestock insurance programme by the end of the year.
The potential market is large, with 11.5m head of livestock in the country. One benefit under the scheme is that farmers will be able to use their electronically chipped and registered livestock as collateral when seeking finance from bodies such as the Myanma Agriculture Development Bank.
This undertaking comes on the heels of a two-year pilot crop insurance programme that was approved in January by the Ministry of Planning and Finance. The insurance covers damage to crops as a result of unfavourable weather.
Although agriculture accounts for one-third of GDP and employs half the population, Myanmar has never offered this type of coverage. The project is beginning by insuring paddy in the Yangon, Ayeyarwady, Magwe and Mandalay regions, and is provided by local firm Global World Insurance.
Together, the schemes are expected to grow insurance awareness among the rural population, creating a pool of clients that may be incentivised to take out policies from other product lines in the future.