Recent liberalisations are set to transform the insurance sector in Myanmar, and the potential for future growth is remarkable. For almost half a century, business lay entirely in the hands of the state. That fact, plus economic isolation and slow growth, mean that the country is presently the least insured in the ASEAN region, with penetration at 0.05%. Now, the licensing of private insurers and the opening of the market to foreign players are expected to lead to major growth in this untapped market. According to insurance firm MetLife, the life side of the business could grow from $1m of premiums in 2012 to $1bn in 2028.
At one point, as many as 100 companies sold insurance in Myanmar. However, following independence, the state began to take over. By the 1960s the sector was consolidated, with all foreign insurers nationalised in 1963.
Liberalisation began slowly and was marked by false starts. When the Insurance Business Supervisory Board (IBSB) was introduced in 1996, the law which established the regulator allowed foreign insurers to enter the market. But for decades, international activity was all but non-existent, the exceptions being one joint venture that was formed in the 1990s and policies sold through Myanma Insurance – the monopoly provider — via fronting.
Liberalisation came quickly after the political reforms began in 2010. In 2012 a total of 12 new insurance licences were issued. Of these, nine were for general and life, and three were for life only. IKBZ Insurance, part of the KBZ Group, was the first private insurer to register, and it offers a wide range of products. In the life insurance subcategory, this includes group life, snake bite insurance, and sportsman life and health insurance. In non-life, the company sells fire, comprehensive motor, cash-in-transit, cash-in-safe, cargo and travel insurance.
The other domestic insurance companies are First National Insurance, Aung Thitsar Oo Insurance, Young Insurance Global, Ayeyar Myanmar Insurance, Global World Insurance, Pillar of Truth Insurance, Aung Myint Moh Min Insurance, Excellent Fortune Insurance, Capital Life Insurance, Grand Guardian Insurance and Citizen Business Insurance.
A total of 24 foreign representative offices have been opened in the country, including AIA, Prudential Holdings and Manulife. Three Japanese companies – Tokio Marine & Nichido Fire, Mitsui Sumitomo Insurance and Sompo Japan Nipponkoa Insurance – have been granted licences to operate, but only within Thilawa Special Economic Zone (SEZ).
According to the local press, in October 2015 the companies operating in Thilawa SEZ were given permission to offer liability insurance. Previously, they had been limited to fire, life and vehicle products. In early 2016 Sompo Japan Nipponkoa became the first international firm to offer auto insurance policies, though these were restricted to Thilawa.
Previously, the local private companies were limited to six of a possible 48 lines, with only Myanma Insurance permitted to sell all lines. Since then, in line with ongoing reforms, two more lines have been added to the private providers’ portfolio: health insurance and marine cargo insurance. The Treasury is currently considering the liberalisation of investment restrictions on the insurers.
In early 2016 the IBSB said that it would be allowing some European insurers to apply for licences to operate in Thilawa SEZ. To qualify, the companies must have had a representative office open in Myanmar for three years, 30 or more years of experience in the business and at least two years operating in ASEAN. According to the local press, the licences will cost $30,000 initially and an additional $10,000 per year. The government may also allow foreign firms to join with local companies and open domestic branches.
The IBSB falls under the auspices of the Ministry of Finance and Revenue, and is responsible for licensing insurers, underwriting agents and insurance brokers. The minimum capital required for private insurers in the Myanmar market is MMK6bn ($4.9m) for life insurers, MMK40bn ($32.5m) for non-life companies and MMK46bn ($37.4m) for entities doing both, according to international law firm Norton Rose Fullbright. A deposit equal to 10% of capital must be placed with the central bank, while Treasury bonds worth a total of 30% of capital must be purchased.
Despite having been liberalised for just a short time, overall performance has been good. Pent-up demand has been significant. According to local press reports, at the end of 2015 the sector had expanded by 40% since new entrants started arriving in 2013, with the annual growth rate averaging more than 12% during this period. The current government is supportive of the insurance sector and is encouraging its development. As part of its 12-point economic plan, the opening of insurance to international players is on the list of proposed financial reforms.
Into The Pool
Observers say that further reforms are needed, especially in terms of governance. The work of the IBSB has so far mainly been carried out by Myanma Insurance, and a clearer separation of duties is needed to make the regulator truly independent. This process is now under way. Myanma Insurance was officially separated from the board in 2016, while the Financial Regulatory Department under the Ministry of Finance is eventually expected to take over responsibility for oversight of the insurance sector. “The insurance sector is still in its infancy stages, U Ba Tun, managing director of Aung Thitsa Oo, told OBG. “For the industry to grow to its full potential there needs to be more liberalisation and an easing of restriction by the regulator on individual operators, especially in terms of products and pricing.”
Overall, regulations are considered highly restrictive. Insurers are still limited as to the total risk they can take on. After a point, they are required to place business with a coinsurance pool, formed by all the operators, which for all intents and purposes means ceding the business to Myanma Insurance, as only the former monopoly has the capacity to take on the risk. According to “US-Myanmar Relations: The Next Phase” – a report from the US Chamber of Commerce – in the past the pool has been largely unprofitable.
Fire insurance risk is currently limited to MMK500m ($406,000) per insurer, while auto insurance is limited to MMK300m ($244,000), according to the Myanmar Times. Insurers have also said that the capital burden is high, especially since 40% of the total is unavailable to them due to mandatory reserves held in Treasury bonds and at the central bank, and are of the opinion that they should at least be able to deposit the money with private banks to generate interest.
Lack Of Competition
Not only is risk capped, but the policies themselves are dictated by the regulator. Wording is standardised across the sector. Insurers have also said that the mandated insurance forms are poorly designed, while many of the policies the authorities do allow them to sell are not receiving much interest from the public. Price competition is also not yet permitted, with premiums fixed. “Everyone sells the same policies, this is the main issue,” U Sein Min, a consultant to Taiyo Life Insurance and former Myanma Insurance executive, told OBG.
Other concerns hang over the sector. While the penetration rate is very low, growth may not be as fast as originally hoped. Awareness is still very limited, while few people have the additional income needed to pay the premiums. Because of the lack of a robust regulatory framework, public interest in insurance is likely to remain weak, according to the US Chamber of Commerce report. The sector also faces underinvestment in terms of IT and a shortage of skilled professionals. As U Myo Naung, managing director of Grand Guardian Insurance, told OBG, “One of the hurdles to development of the sector is the lack of capable insurance professionals, such as actuaries.”
The chamber has recommended that the country allow more foreign participation in the sector. It has also suggested that Myanmar adopt some of the regulations in use in neighbouring countries, such as Thailand and Malaysia. This would allow for more rapid development and increase confidence on the part of foreign insurers.
Concerns about the ability of the insurers, including Myanma Insurance, to stand up to competition remain, and because of that further liberalisation is likely to take time. “They must open the market step by step,” U Sein Min told OBG. “The local companies cannot yet compete.” The prevailing sentiment is that the regulators should also go slow when it comes to the liberalisation of premiums. Capacity and experience are very limited at the insurer level, and the country has no actuaries. If the new insurers were allowed to set their own rates, the fear is that they would begin to aggressively reduce their prices, leading to instability in the market.
One subsector with significant potential is micro-insurance. Low-cost, innovative products that cover essential risks are much needed, and will likely be taken up quickly as they are developed and offered. While challenges exist, these can be overcome if policies are well designed, and if the distribution channels are effective and efficient.
As of late 2016 the micro space was virtually empty. Neither Myanma Insurance nor the new private insurers offer policies of this type. Some credit-linked products from microfinance institutions and cooperatives are available in the market, but not much else. Microfinance in general is better established. It has been in the country in one form or another for decades, and a formal legal framework was published in 2011 allowing for local and foreign investment in microfinance institutions. However, no framework has been developed specifically for the subsector.
Once the right sort of laws and regulations are in place, micro-insurance will also need to tackle a number of barriers to growth. Affordability, even for low-cost products, is an issue, with GDP per capita at $1200. Levels of understanding are also very low. Potential customers tend to have trouble distinguishing between insurance and investment, believing that they will make a profit from a policy they buy, and are unable to appreciate the risk mitigation aspects of the products. The distances involved in reaching potential customers also stands to make sales difficulty, as the industry has very few physical branches.
On The Demand Side
Despite these issues, one factor buoying the outlook of micro-insurance growth is the substantial demand for such products. Because incomes in Myanmar are generally low, unexpected costs can be devastating. Unforeseen events are not uncommon either, especially those related to the climate and other natural disasters, such as earthquakes. The lack of insurance products has resulted in less-than-ideal ways of covering the cost of potentially insurable events. For example, when faced with medical expenses 47% of people in the country take out loans to pay the bills, 27% sell assets and 22% use savings, according to local press reports.
In a 2014 survey by BC Finance, a local microfinance firm, it was found that many of its customers had significant concerns regarding the costs related to the death of an individual. That was followed by concerns about health care, and fire and accident expenses. Only 3% of the people surveyed said that theft was a worry. When asked if they would buy micro-insurance products to protect themselves from these risks, 83% said they would. More than a third said that they would be able to increase their investments in business if more of their risks were covered.
Support for micro-insurance has been growing in both the private and public sectors. In late 2016 the World Bank said that it would be providing $100m to Myanmar to aid the development of the financial sector. In part, the funds will go towards efforts related to micro-insurance.
In December 2016 the local press reported that XL Innovate, a US-based venture capital company would be investing $4m in Stonestep, a Swiss-based company that is working to offer a “micro-insurance as a service” product. The main focus at the outset will be Myanmar. Stonestep is also active in the Philippines.
The basic concept is to use existing distribution channels, such as those established by mobile phone companies and financial services firms, to get products to individuals at a relatively low cost. This strategy also allows insurers to access locations that might be difficult to reach with the traditional brick-and-mortar-broker-agent model.
With half of the adult population involved in farming, the largest market for micro-insurance is the agricultural sector. Farmers are also the biggest users of credit and face many risks, including drought, pests, hail, plant diseases, floods and excessive rainfall. The right sort of insurance products have yet to be developed for the sector, while regulation covering agricultural policies is weak. The farmers themselves are accepting of the idea of insurance. Around 50% of individuals involved in agriculture have both an interest in the product and enough available cash to make the purchase. The main task is convincing them that buying a policy is the best use of funds.
The government has expressed considerable interest in supporting the development of relevant products. Crop insurance has become a priority for the new administration. The most promising solutions for agriculture are those linked to the weather, especially storms and droughts, and are seen as more efficient and equitable than simple credit-linked products.
Some large-scale insurers have taken an interest in offering weather-linked policies. Sompo Japan Nipponkoa plans to start selling a product tied to rainfall. It will at first be made available through partner companies, as the Japanese insurer does not yet have permission to deal directly with local customers. The target market will be the drier regions in the centre of the country. Satellite imagery will be utilised to determine whether rainfall has been lower than predetermined benchmarks, and payouts will be made to farmers in the affected areas.
The key for the distribution of insurance, especially micro products, will be financial technology. The mobile sector has been liberalised since 2013, and as a result ownership and use of cell phones have increased rapidly. Many more people have handsets than have contact with financial institutions. The mobile penetration rate is an estimated 90%, according to local press reports, with actual phone ownership placed at 40%. Handsets allow insurers to reach customers who are far from a branch or costly to visit in person. The use of them makes sense, especially if the product has a low premium.
In 2016 the government passed the Regulation on Mobile Financial Services. While not directly addressing insurance, it does establish a robust framework for related institutions and solutions (see Banking analysis). The regulation will enable the growth and development of distribution channels and payment methods. Initiatives like Wave Money hope to offer relevant financial products through handsets, while in early 2016 IKBZ became the first licensed insurer to offer products via mobile devices. KBZ is planning to list its insurance subsidiary in 2017 on the Yangon Stock Exchange. The company is also looking for a partner to develop financial technology solutions.
The insurance sector in Myanmar is set for significant and sustained growth. The question now is how quickly further reforms will be implemented. While the initial liberalisations came rapidly, caution seems to be the guiding principle going forwards. It is likely that the real opportunities for foreign insurers will come after the regulators are comfortable that the domestic insurers are competitive. “The insurance industry can act as a natural stabiliser for the financial industry as a whole,” U Thaung Han, managing director of CB Insurance, told OBG. “To achieve this the sector needs more market freedom.”