A process of substantial reform is under way in Myanmar’s insurance industry. The sector is eagerly anticipating a blueprint for liberalisation, though this had not been published as of early 2018. Until it arrives, insurers must navigate a number of challenges, ranging from underdeveloped capital markets that only offer a narrow band of investment instruments, to the restricted consumer activity and the lack of public awareness about the benefits of life and non-life policies. The success of the sector also remains highly dependent on the amount of money in people’s pockets. Although Myanmar’s per capita GDP is accelerating, it is still low in comparison to many regional peers. Improving economic conditions will provide insurers with a larger market, which as yet is almost completely untapped by either local or foreign private sector players.
Phased Development
As the high number of grand colonial-era buildings that formerly housed insurance companies in Yangon attests, the industry in Myanmar was once very much alive and well. Indeed, between 1897 and 1940 there were some 110 insurance companies registered in what was then known as Burma. In the early years of the country’s independence, private insurers continued conducting business, but in 1952 a nationalisation process began under the newly formed socialist regime. In 1959 all life insurance companies were consolidated in the state Union Insurance Board and by 1964 all private insurers had been abolished.
From 1969 to 1976 all nationalised financial sector activities were brought under the People’s Bank of the Union of Burma. Its decentralised structure meant that all insurance business was then placed under a state entity, Myanmar Insurance Corporation. This outfit – renamed Myanma Insurance in 1989 – still dominates the market, with both life and non-life lines of business in its portfolio. Under the Myanmar Insurance Law, the Ministry of Finance (MoF) still guarantees Myanma Insurance’s liabilities. Additionally, foreign businesses operating in Myanmar are required to buy insurance from the state-owned underwriter.
Other companies must cede premiums beyond certain levels to an insurance pool run by Myanma Insurance. In addition, the sector giant issues some of the country’s few compulsory insurance lines, which include life insurance for civil servants under the age of 50 and for military service personnel aged between 18 and 55. Given the size of the civil service and the military, these are both substantial markets.
Private Providers
In 1996 the Insurance Business Law was passed, establishing a regulator, the Insurance Business Supervisory Board (IBSB), which falls under the remit of the MoF. The board was charged with looking after applications for a licence, as well as setting capital limits and other requirements for insurers, underwriters and brokers. In late 2012 the IBSB launched its application process for private insurance companies. Of the 20 firms that applied, 12 were granted licences and they form the core of today’s non-state insurance business. Five of these commenced activities in 2013, with the rest starting the following year.
Of the 12 private providers, three are life only, which requires a paid-up capital of MMK6bn ($4.6m). The others are combined providers covering life and non-life, and must have a minimum paid-up capital of MMK46bn ($35.1m). A solely non-life company requires paid-up capital of MMK40bn ($30.5m). Some 10% of this has to be deposited in the state-owned Myanmar Economic Bank, receiving no interest, and another 30% must be invested in government Treasury bonds. Insurers are subject to a one-off licence application fee of MMK3m ($2290), followed by annual payments of MMK1m ($764). In 2014 the MoF’s Financial Regulatory Department took over responsibility for private insurers from the IBSB. That same year three Japanese insurers were granted permission to begin operations within Thilawa Special Economic Zone (SEZ). The industrial park near Yangon has traditionally targeted Japan-based companies making it a good base for these underwriters (see Industry chapter). As of early 2018 some 24 foreign insurance firms had representative offices in Myanmar, along with the dozen local companies. While private insurers are still restricted in what services they can provide, foreign insurers are unable to conduct business. The representative offices are indicative of industry expectations that the market will soon open to overseas entities, with international businesses eager to move into what is for many products a large, untapped market.
Facts & Figures
Myanmar had a population of some 51.5m at its last census in 2014, with more recent estimates putting the figure closer to 54m. GDP grew at a compound annual growth rate of around 14.5% between 2006 and 2016, according to figures from the IMF. This has moderated somewhat in recent years, with GDP growth of 7% in 2015 and 6.1% in 2016. The IMF has estimated GDP growth rose to 7.2% in 2017 and will reach 7.6% in 2018.
This produces a per capita GDP of around $1232 for 2016, which is some way down on the insurance s-curve. According to this predictive measure, a per capita income of around $5000 generally indicates a point where there is a sufficient middle class for the insurance market to begin expanding rapidly. Up until this point, insurance sector growth tends to match that of GDP, a sign that provided momentum is maintained, it will not be too much longer before Myanmar catches up. However, per capita numbers tend to obscure income inequalities, meaning various segments of the population will be at different points on the s-curve line. Urban centres – such as Yangon, Mandalay and the new capital, Naypyidaw – are home to relatively higher concentrations of wealthy individuals, making for more ready markets.
In the meantime, penetration rates remain low, despite the presence of numerous foreign and local players. According to Swiss Re Sigma, in 2015 non-life penetration in Myanmar stood at 0.07% and around 0.01% for life, giving a market total of 0.08%. Comparing these rates to Myanmar’s neighbours, Cambodia had 0.35% and 0%, Laos had 0.44% and 0.01%, and Vietnam had 0.74% and 0.82% for non-life and life, respectively. In September 2017 Myanma Insurance estimated that the sector accounts for 0.07% of the state’s total revenues.
According to the Central Bank of Myanmar, total gross written premium (GWP) amounted to approximately MMK33.9bn ($25.9m) in the first quarter of 2017, with the state insurer accounting for 45.4% of this. Total GWP for the private sector equalled MMK41.8bn ($31.9m) for FY 2015/16 and MMK61.4bn ($46.9m) for FY 2016/17. This equates to 46.8% growth, albeit from a low base. The rise of GWP has been substantial in the public sector as well, with Myanma Insurance’s GWP increasing by some 40.3% from a total of MMK27.8bn ($21.2m) in 2015 to reach MMK39bn ($29.8m) in 2016.
Market Players
Aside from Myanma Insurance, the original dozen domestic private sector insurers include three life-only companies: Capital Life Insurance of Capital Diamond Star Group; Citizen Business Insurance Public of Cooperative Bank; and Aung Myint Moh Min Insurance, which is part of one of the country’s two military-owned conglomerates. Banks also own two of the major combined life and non-life outfits, with KBZ Bank’s IKBZ Insurance and Ayeyarwaddy Bank’s AYA Myanmar Insurance. The other combined insurers are owned by holding groups or conglomerates: Grand Guardian Insurance is owned by Shwetaung Development; First National Insurance is a part of the Htoo Group of Companies; Young Insurance Global of the Young Investment Group; Global World Insurance of Asia World; Excellent Fortune Insurance belongs to Excellent Fortune Development Group; Aung Thitsa Oo Insurance is part of Union of Myanmar Economic Holdings, which is the second military-owned conglomerate; and Pillar of Truth Insurance is held by Parami Energy Group of Companies.
Foreign Interest
Foreign insurers that have representative offices in Myanmar include Sompo Japan Insurance, Mitsui Sumimoto Insurance, Tokio Marine and Nichido Fire Insurance, Taiyo-Life Insurance, Poema Insurance, American International Assurance, Great Eastern Life Insurance, Prudential Holdings, ACE INA International Holdings, Pana Harrison, Manulife Financial Life Insurance, Muang Thai Life Insurance, JLT and Willis Towers Watson. As they are presently prohibited from conducting local business out of their representative offices, foreign underwriters in Myanmar are largely engaged in research and capacity building preparations ahead of the expected reforms to open the market to their active participation. The exception to this is the Thilawa SEZ, where three Japanese insurers have already been licensed to provide coverage within the zone.
Many of these international insurers awaiting licences have formed an association, the Foreign Representatives Offices, to pressure the government to implement reforms that will ease restrictions over their operations. Although it is unclear exactly when this will happen, the government’s Directorate of Investment and Company Administration gave permission for the establishment of the Myanmar Association of Insurers in August 2017, further expanding the sector’s lobbying power. “Everyone is looking forward to the regulatory body announcing the possibility of joint ventures in both general and life insurance between local and international players,” U Myo Naung, managing director of Grand Guardian Insurance, told OBG. “When JVs are permitted, they bring the capital and expertise and we bring the local market knowledge.”
Regulation
While most foreign entities are completely barred from offering insurance in Myanmar, the operations of domestic players are heavily managed. The ruling that premiums over a certain level be ceded to an insurance pool is one of the most notable restrictions, as it effectively redirects this business to the state provider. Private players are also limited in the type of coverage they can provide and at what premiums. Private insurers are currently allowed to offer nine lines: fire, comprehensive motor, cash-in-transit, cash-in-safe, life, fidelity, marine, travel and health. The coverage for all is standardised and the premiums set by the regulator. Though the first rule ensures companies do not take on risks they cannot cover, the second means underwriters are unable to price risk according to their own evaluation. This may be largely precautionary, given a widespread suspicion of financial sector institutions among many ordinary citizens. The externally set prices could also be partly a reflection of capacity constraints within the sector, as some domestic companies likely lack sufficient expertise in actuarial sciences.
Another constraint on the growth of private companies is the lack of a developed domestic capital market. This means insurers have a limited number of places to invest their premiums and cover risks. The existing bonds tend to be limited to the short term, while insurers need long-term options, particularly in a youthful market like Myanmar’s. “Life insurance premiums need to be invested in matching assets in order for insurers to be able to make payouts,” Thiri Thant Mon, managing director of investment banking firm Sandanila, told OBG. “In Myanmar, the only available financial assets are short-term bank deposits. This situation leaves insurers bearing a lot more of the risk in underwriting.”
It is likely that this will change over time as capital markets continue to develop. Moreover, foreign players, once they are able to join the market, will be able to take advantage of their diverse portfolio as well as higher volumes to help spread risk. This offers foreign insurers considerable advantages, on top of their expertise with a wider range of products in more developed insurance markets. Collaboration in the form of partnerships and joint ventures may be a positive way forward for some, but the openness of foreign outfits to this remains to be seen. As of early 2018 the future of the sector remained unclear, as the market continues to await the blueprint for insurance reform, though it is expected to open the sector to foreign players, setting their operating parameters. New rules on brokerages and reinsurers were also pending, with no timeframe provided.
Channels & Products
Given that many private insurance companies are either owned by banks or form part of holding companies that also incorporate banks, the branches of these lenders are a central distribution channel for insurance products. By law, all property bought with a mortgage must have fire insurance, which is a major advantage for bank-linked insurers. In FY 2016/17 fire insurance premiums amounted to MMK26.5bn ($20.2m), or 43% of the total private sector market. The other main non-life line of business was comprehensive motor coverage, which accounted for MMK14.2bn ($10.8m), making up 23% of the private sector market. Life insurance, meanwhile, was worth MMK15.6bn ($11.9m), representing 25.4%. Myanma Insurance also received a large slice of its premiums from fire, at 28.6% of the total in fourth quarter of 2016. However, third-party liability insurance is the state insurer’s main business, accounting for 57.7% of total premiums in that same period. This is largely due to third-party liability being compulsory in Myanmar, with Myanma Insurance the sole provider of this line. Although it is not mandatory, comprehensive motor insurance has been gaining popularity, with customers rising from 27,000 in November 2015 to 60,000 in November 2016, according to figures from Myanma Insurance. Despite this increase, there is considerable room to grow, with around 600,000 cars in circulation in that same period. Travel insurance is known as “Special Travel Insurance for Express Ways” and does not cover travel abroad, but can be purchased to cover journeys of more than 100 km on Myanmar’s roads.
Life remains underdeveloped, although each year sees a virtual doubling in premiums. For FY 2016/17 the amount collected by private insurers was MMK15.6bn ($11.9m), up from MMK7.8bn ($6m) in FY 2015/16. There are five types of life insurance on offer: individual endowment, group term life, sportsman insurance, credit life and snake bite. The latter is a popular policy, although the premium set for it is often thought to be too low by private insurance companies, making it difficult to make a profit on this product. In terms of distribution channels, the market is developing, with a number of different models in play. “For the time being the agency model will be the key channel for dealing with local customers and the preferred way to expand the operations of insurance companies in Myanmar,” Thaung Han, managing director of Citizens Business Insurance Myanmar, told OBG. “Bancassurance will be the next step insurance companies take to further expand their operations. An expanding market will naturally push for the development of bancassurance and I believe the regulator will legislate accordingly.”
Modern Forms
Despite the natural convergence between banking and insurance services, bancassurance models are likely to face increasing competition from online sales in the years to come.
According to government counts, Myanmar had a mobile penetration rate of 89% in 2016, while internet penetration was at 71%, due to the prevalence of low-cost smartphones. Myanmar may skip a step in market development, bypassing established insurance company branches and local brokers to jump straight to technology channels.
Another area likely to benefit from technological advances and the generally low level of household income is micro-insurance. This would help address the predominantly rural nature of Myanmar society. The country has less than one-third the urban area of Vietnam and one-fifth the urban area of Malaysia, but has a land area roughly equal to both of those countries combined. The largest three conurbations are Yangon, Mandalay and Naypyidaw. The most recent census from 2014 showed that internal migration from the countryside to urban areas accounted for 80% of the population growth in the largest city, Yangon, over the last five years. This makes its demographic profile similar to that of countries such as Bangladesh, which has a well developed micro-insurance segment.
Micro-Insurance
Micro-insurance is being applied, first and foremost, against the loss, theft or damage of smartphones. From there, customers are increasingly nudged into other insurance products. These policies include coverage for micro-loans that are issued by microfinance institutions and Myanmar Agricultural Development Bank in local villages and towns, or insurance to cover flood and other natural catastrophes, to which agricultural communities are particularly vulnerable. Basic health care coverage and policies that provide a buffer to a family’s loss of income in the case of a medical emergency are also likely to be popular, once the psychological and financial obstacles to market entry are overcome. Winning the trust of potential customers will be an essential first step to growing these product lines, with insurers having to demonstrate reliable, prompt services and payouts. While there are many insurers present in the market, including financial technology start-ups such as Stonestep, the lack of regulations for micro-insurance products continues to hold back development. Many hope that when long-awaited insurance reforms are passed they will include provisions for micro-insurance, as this could help many local farmers manage their risk in a more affordable way. At present, Myanma Insurance does not offer agricultural insurance, and private sector insurers are also restricted from issuing such policies. Instead, microfinance institutions and cooperatives in rural areas tend to act as insurers, providing credit life insurance to those who take out loans from them. This has proved popular, securing many loans that would otherwise not have been issued, but remains limited in scope. Additionally, such policies may contain consumer protection risks that are not fully covered in existing legislation.
Outlook
Enthusiasm for the Myanmar market among private domestic and international insurers has been high, with the country promising huge potential returns. The size of its population, geostrategic location and its natural and human resources are set to ensure sustained GDP growth, with a corresponding take-off in the insurance sector.
For now, the market is in a holding pattern, awaiting regulations to free up the needed range of products and end state controlled pricing, two key areas that most private insurers find challenging. The entry of foreign insurers – either as joint ventures or independently – will also inject much needed know-how and capital to enable the sector to meet the needs of the population. These prospects offer major longer-term advantages for companies that can keep their operations running in the meantime.
Myanmar is set to become a key growth market for the region, with all manner of products and lines of business opening up. Building and maintaining trust will be essential during this primary expansion phase, with professional competence and responsive systems crucial to establishing trust with the public – the first step towards generating new customers. While waiting for authorities to implement the needed new framework, many players are focusing on training staff and building up IT and management systems in preparation for the sector’s future gains.
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