After decades of slow liberalisation, Myanmar’s insurance sector is on the cusp of a significant transformation. Several recent policy announcements indicate foreign companies will soon be permitted to conduct business in the country, more than 50 years after the sector was first nationalised. Myanmar’s 54m-strong population is almost completely uninsured, with penetration rates in both the life and general segments below 1% of GDP. While awareness of insurance benefits is low, the country’s population is young, suggesting considerable scope for diversified expansion in the future. Moreover, macroeconomic fundamentals remain solid, with the country expected to continue on a steady near-term growth path. Many products within the formal sector remain financially inaccessible to the lower-income demographic, which leaves room for growth in micro-insurance.
Regulatory obstacles, including continued market dominance by state-owned Myanma Insurance, restrictions on product offerings, and issues with pricing and policy writing, continue to slow growth. However, the government has made several recent moves to reform the system by collaborating with bilateral partners and private stakeholders to draft new policies and by announcing the opening the sector to foreign companies at some point in FY 2018/19 (see analysis).
Structure & Oversight
As is the case with the banking sector, Myanmar’s insurance industry thrived prior to 1964, when the new socialist government came to power and nationalised all private insurance companies. Modern reforms began with the promulgation of the Myanmar Insurance Law (MIL) in 1993. The law established a legal framework for Myanma Insurance, which offers a variety of both life and general insurance products. The MIL made coverage compulsory for certain groups, to be provided by Myanma Insurance. Government employees are required to hold life insurance, while motor vehicle owners are obliged to obtain third-party liability insurance through Myanma Insurance. The law also stipulates that foreign investors may only obtain coverage through the state-run company. In 1996 Myanmar enacted a new Insurance Business Law (IBL), enabling private companies to apply for an insurance licence in the country and establishing the Insurance Business Regulatory Board (IBRB).
The Ministry of Finance (MoF) holds broad responsibility for insurance policy-making and regulation through its Financial Regulatory Department (FRD), which was created in September 2014 with the transformation of the Myanma Microfinance Supervisory Institute. The FRD operates the IBRB, which is responsible for regulating and supervising Myanmar’s non-bank financial sector, including microfinance institutions (MFIs), state-owned banks and private insurance companies. The board reports to the MoF and is responsible for licensing insurers, underwriting agents and brokers.
Sector liberalisation began in earnest in 2012 when the IBRB opened the application process to the private sector, granting 12 local insurers a licence to operate. Three of these companies received life insurance licences, and nine received composite life and non-life licences, according to the April 2018 “Myanmar Financial Services Monitor” report by Yangon-based FMR Research & Advisory. The FRD reports that there were 62 local insurance company branches and 28 foreign insurance representative offices in the country in 2017.
Premium & Major Players
Myanma Insurance remains the dominant player in the insurance industry, accounting for more than 45% of total gross written premiums in 2017, according to the Central Bank of Myanmar (CBM). Fire insurance accounted for the bulk of private insurance premium during FY 2016/17, at 43%; followed by life insurance (25%), comprehensive insurance (23%), travel (7%) and marine (1%). Cash-intransit and fidelity insurance products each accounted for less than 1% of total premium.
The majority of private insurance firms are owned by local conglomerates with banks in their portfolio, offering insurers an important distribution channel. Banks also require borrowers to hold fire insurance policies for any developments or property used as collateral, which explains the product’s dominant role in Myanmar’s insurance mix. Successive governments have stated their intention to allow foreign insurers to operate since 2014, and recent policy moves could soon advance the situation. However, as of November 2018 foreign companies were not able to offer insurance coverage in Myanmar outside of designated special economic zones (SEZs). Stakeholders report that this has negatively impacted local companies’ development and expansion, and continues to slow growth. “The local insurance sector is underdeveloped because we lack skilled human resources, a population that understands the benefits of insurance products and a developed system to sustain growth in the sector,” U Soe Win Thant, director of Global World Insurance, told OBG.
Limited availability of data presents another obstacle, as the IBRB does not publish industry statistics. “Private companies can create new products, but it is difficult to do so without reliable market data,” U Marlar Nyunt, deputy managing director of Aung Thitsa Oo Insurance, told OBG. “At present, companies share their data with one another at their discretion. There is no centralised entity that can facilitate this process more efficiently. The value of customer data is well understood, because it is key to truly understanding the needs of the market.”
However, some stakeholders report that the sector has been expanding steadily since 2012. FMR Research & Advisory cited Grand Guardian Insurance (GGI), one of the country’s most successful private insurers, which reported post-tax profits of MMK3.6bn ($2.5m) in FY 2015/16 and FY 2016/17.
However, in a February 2018 report on Asia’s insurance ecosystem, multinational risk management company Willis Tower Watson found that premium rates in Myanmar declined by between 10% and 30% in 2017 – depending on the line of business – as the country’s rapid macroeconomic growth slowed and investor confidence waned. Property, casualty, construction and aviation insurance lines were affected the most.
A similar slowdown was highlighted in the life segment, with life insurers experiencing stagnant growth due to lack of distribution channels and the product’s perceived unattractiveness. Another challenge is the product’s long-term nature; the longest-dated asset in which banks can invest is a five-year Treasury bond, which does not allow for an attractive term on maturity. FMR Research & Advisory has further reported that construction companies are usually important purchasers of group life policies, which means that the segment has been affected by a recent industry slowdown; individual life policies remain too expensive for most of the population.
Fire, motor and travel products are generally more popular, with the fire and motor segments accounting for more than 75% of total premium income for three of the country’s largest private insurers – AYA Myanmar Insurance, GGI and Global World Insurance – in FY 2016/17. Travel insurance accounted for between 3% and 7% of total income for the same three insurers.
When liberalisation commenced in 2012 some of the first products permitted to be offered by private insurers included motor vehicle, fire, cash-in-safe, cash-in-transit and fidelity products. Highway travel insurance was approved in 2014, followed by marine cargo and health insurance in 2015. Health insurance regulations were revised in 2016 to offer new lines, including critical illness coverage and higher benefits.
However, limited product range and a rigid pricing framework continue to constrain growth. The IBRB controls policy wording and pricing, with identical prices set across all private firms, which means that they can compete only in terms of customer service and branch coverage. Critics claim that prices are outdated – particularly in the health insurance segment – and private firms report that regulatory challenges remain a significant obstacle to robust expansion. “The insurance sector needs a more agile regulator,” U Aung Ko Ko, managing director of First National Insurance, told OBG. “The IBRB needs to be more responsive to sector demands. Additionally, the FRD is operating at capacity and has trouble devoting the necessary resources to insurance. Firms would benefit from better ratings and more flexible insurance products.”
Growth opportunities in the sector are nonetheless substantial. In an April 2017 report examining Myanmar’s insurance sector potential, global insurer Aon estimated that in 2015 life and non-life gross written premium were valued at $6m and $40m, respectively. Penetration rates registered 0.07% of GDP for non-life and 0.01% for life. Using growth projections modelled on Vietnam’s insurance liberalisation, Aon projected that non-life insurance penetration could reach 0.8% by 2030, bringing the value of non-life gross written premium to $1.4bn. Over the same period, life insurance penetration is forecast to hit 0.55% of GDP, increasing gross written premium to $900m. In an earlier report published in 2014, global consultancy McKinsey also modelled the sector’s growth potential, finding that total annual insurance premium could hit an estimated $2.8bn by 2030.
Overall, insurance sector development is key to broader macroeconomic and investment growth, as it will provide businesses with bankruptcy protection, with export insurance to boost trade growth, credit guarantees to prop up small and medium-sized enterprises, and offer a new savings channel. “Liberalisation will increase the capacity of the local insurance industry and introduce new products to the market,” U Myo Naung, managing director of Grand Guardian Insurance, told OBG. “These would not be developed otherwise and will be a tremendous benefit to the sector.”
The micro-insurance segment holds particularly high potential for future growth. Myanma Insurance estimated there were only 500,000 life policyholders as of August 2017. Revealingly, FMR Research & Advisory reports that the country’s largest micro-insurance firm, Pact Global Microfinance Fund, covers more people than the entire formal sector.
Outside of the formal sector, micro-insurance products hold extremely high potential for future expansion, with development partners making recent investment announcements that could widen coverage of the country’s middle- and low-income population. In October 2018 the UK’s Department for International Development (DFID) announced a partnership and $1.1m investment in the micro-insurance segment with Swiss insurance technology firm Stonestep AG. Dubbed the DaNa Facility, the initiative aims to reach 600,000 new policyholders and will be funded by DFID. Investment will be used for prudential strengthening, consumer research, financial literacy education and new technology. The project will be rolled out in phases, the first of which will involve collaboration with VisionFund Myanmar, a MFI linked to relief organisation World Vision International. Stakeholders plan to reach out to low-income population segments, broadening VisionFund’s product offerings. These activities will be expanded to other MFI partners and alternative distribution channels, including mobile network operators, mobile money platforms and other payment gateways, which have already made significant strides in boosting financial inclusion since 2013 (see Banking overview). The project will run until 2020. Stonestep reported that education will play an important role in expanding micro-insurance coverage, estimating that 80% of the population either does not know or fully understand the benefits of insurance. It also valued the middle-lower and lower-income insurance market at $475m, and forecast that micro-insurance products could add up to $75m of business to the industry.
While demographic and macroeconomic trends are favourable, more accommodative regulations are also needed in order to unlock growth. Challenges to liberalisation, such as constraints on foreign participation in insurance activities, have been the most significant obstacle thus far in preventing robust growth. Promisingly, however, there have been recent signs that foreign participation in the insurance sector will begin in the near future.
Myanmar has not yet published a sector-specific development policy for the sector, although the government has made recent efforts to include the sector in macroeconomic policy-making. The Myanmar Sustainable Development Plan (MSDP), a long-term macroeconomic policy published in August 2018 that runs through to 2030, has identified improved access to finance and a stronger financial system as strategically important to its goals of job creation and private sector-led growth. Several action plans have been identified to implement this strategy, including strategy 3.5.15, which calls for the insurance sector to be strengthened and further liberalised to create a competitive domestic insurance market that serves the needs of the population. In 2016 IBRB announced it would invite private insurers and representatives of foreign insurance companies to collaborate on a liberalisation strategy. Stakeholders created an insurance liberalisation roadmap, which was presented to the government in early 2017 but had yet to be released to the public as of December 2018. This has been a source of frustration for many stakeholders, although liberalisation is gathering pace. “The liberalisation of the sector is inevitable and unstoppable. However, a proper legal framework and roadmap should be in place to ensure sustainable growth in the sector. The continuous changes in the liberalisation criteria make things worse,” U Aung Ko Ko told OBG.
In addition to macro-level policy reforms, the IBRB also issued updated licences to foreign representative offices in March 2017, as well as Notification No. 3/2017, which allows foreign companies to operate in SEZs provided they meet certain criteria. These include at least 10 years of operation, $1bn of paid-up capital and a minimum credit rating of “B+” from Standard & Poor’s, as well as a track record of operating in at least two other Asian countries. Three Japanese companies have commenced operations in the Thilawa SEZ: Sompo Japan Nipponkoa, Tokio Marine & Nichido Fire Insurance, and Mitsui Sumitomo Insurance, who were given licences in 2015 to operate in the Japan-financed SEZ.
Such capacity building should be helpful, and the government has ramped up efforts to collaborate with its partners to implement reforms. The Japan International Cooperation Agency (JICA), Japan’s aid agency, has been providing training and technical assistance for Myanmar’s insurance sector since the 1990s, most recently under the JICA Technical Cooperation Project on the Development of the Insurance Sector in Myanmar.
Under this initiative, two experts – a government actuary for life insurance and a general insurance expert – will begin assisting the IBRB in its liberalisation efforts in late 2018. A top priority for stakeholders is amending the IBL, which has not been updated since its promulgation in 1996.
The World Bank is also providing support under a $100m credit agreement, announced in December 2016, which will support the country’s Financial Sector Development Project. Although the bulk of financing will go towards small business lending (see Banking overview), the multilateral finance institution reports that it is also working to develop Myanmar’s microfinance and insurance sectors as part of the project.
In January 2018 the industry’s first lobby organisation, the Myanmar Insurance Association (MIA), was permitted to commence operations. MIA is chaired by U Win Myint Han, who is also chair of the IBRB. The MIA has already signed a memorandum of understanding with the General Insurance Association of Japan, the Insurance Institute of India, the Malaysian Insurance Institute, and the Australian and New Zealand Institute of Insurance and Finance in order to collaborate on modernising Myanmar’s regulatory frameworks. Although membership is currently restricted to the country’s domestic insurers, FMR Research & Advisory reports that foreign insurers will be permitted to join once they are awarded licences to operate.
In one of the most promising signs to date, in September 2018 the IBRB announced that it would allow foreign insurance companies to conduct business at the start of the new fiscal year, which began in October. According to U Zaw Naing, secretary of the IBRB, the sector’s roadmap has been approved, and the board plans to allow foreign companies to offer both life and general insurance services.
Myanma Insurance’s managing director, Daw Sandar Oo, has publicly stated that the company welcomes the entry of foreign firms, since they will be able to provide new technology and knowledge transfer.
Although reforms have been slower than hoped for many foreign firms, stakeholders agree that long-awaited liberalisation allowing foreign companies to operate will happen in the near future. The challenges are significant: Myanmar’s regulatory environment remains largely undeveloped; there is no broking licence regime; and MI continues to retain a monopoly on 14 of the 29 products currently on offer in the market. The government’s growing recognition that foreign companies will play an important role is evident. As such, 2019 should be a pivotal year, with foreign competition expected to support strong, sustainable growth. The focus is now on when foreign companies will be able to capitalise on the sector’s full potential.
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