November 2019 saw five foreign life insurance companies gain licences to operate fully owned subsidiaries in Myanmar, heralding the start of a new chapter in the industry’s history. At the same time six joint ventures between foreign and local insurers were also licensed, with this, too, set to have a strong impact on the dynamism of the sector. The opening up of the market to these foreign firms promises not only greater investment and competition in the sector, but also an injection of overseas expertise. Nevertheless, more remains to be done for the sector to fully benefit from international investment, including the reform of regulations governing pricing and product diversity.
Road to Reform
Moves towards liberalisation began in 1996 with the passing of the Insurance Business Law, which enabled private firms to apply for an insurance licence and established a basic regulatory framework for the sector. The opening up of the industry has gathered pace in the last decade, with 12 private insurers issued licences in 2012 and foreign players granted the right to establish a representative office (RO) in the country. In 2016 the then-Ministry of Planning and Finance (MOPF) announced that foreign insurers would be allowed to enter the life insurance market through fully owned subsidiaries, and both the life and non-life segments through joint ventures with domestic firms.
Foreign Players
Following these announcements, in April 2019 preliminary approvals were issued by the MOPF to five foreign insurers, allowing them to open wholly owned life insurance subsidiaries. The five companies are the UK’s Prudential; US firm Chubb Tempest Re; Canada’s Manufacturers Life Insurance Company (Manulife); Japan’s Dai-ichi Life Insurance Company; and Hong Kong’s AIA Company, which operates as a subsidiary of the pan-Asian firm AIA Group. This was followed in August 2019 by the announcement of approval for six joint ventures between local and international firms. Three of the six are also in the life segment, namely between Japan’s Taiyo Life and domestic firm Capital Life; Citizen Business Insurance and Thai Life Insurance; and Grand Guardian Life and Japan’s Nippon Life. The other three are non-life ventures between local players AMI Insurance, Grand Guardian General and IKBZ Insurance, and Japan-headquartered Sompo Japan Nipponkoa Insurance, Tokio Marine Nichido and Mitsui Sumitomo Insurance, respectively.
While all 11 operations became fully licensed in November 2017, many of the insurers themselves are not new to Myanmar. Since 2017 Mitsui Sumitomo Insurance, Tokio Marine Nichido and Sompo Japan Nipponkoa Insurance have been conducting business within the Thilawa Special Economic Zone, a Myanmar-Japanese joint venture located south of Yangon. Furthermore, all of these firms have operated ROs in Yangon for several years; possessing such an establishment was a requirement for applying for the new licences. Prudential opened its RO in Myanmar in 2013, for example, and has since worked closely with the government to offer education and training programmes to industry stakeholders on topics such as corporate governance, product development, technological trends and regulatory frameworks. Manulife, for its part, first entered the Myanmar market in 1904, before re-entering the market via an RO in 2014.
Classifications
Whether a foreign company operates as a wholly owned subsidiary or as a joint venture with a local firm has significant implications for the kind of business it can undertake. It also affects licensing procedures and statutory requirements placed on business operations. Currently, wholly foreign-owned subsidiaries can only operate in the life insurance segment. The five selected for this type of operation had to submit an irrevocable and unconditional proposal bond of $400,000 within 10 business days of the licence announcement. Meanwhile, international firms are only allowed a maximum 35% stake in any joint venture they enter into – whether in life or non-life – with this stake consisting of newly issued shares, rather than existing equity. This is in line with the Myanmar Companies Law, which came into effect in August 2018. The law designates companies as local or foreign, with the latter referring to any company in which a foreign entity holds more than a 35% stake. One implication of this criteria for foreign participation is that local composite insurers will have to restructure their company’s life and non-life operations to establish a joint venture.
Local player IKBZ, for example, established IKBZ Life in September 2019 so that it could expand non-life activity through its partnership with Mitsui Sumitomo. Earlier, in January 2019, Myanma Insurance (MI) – the legacy state-owned player that dominates the domestic market – announced plans that it would separate its life and non-life operations moving forwards. These moves follow trends in other developing markets, with the division of operations helping to spread risk, facilitate greater transparency in the asset base and better manage each type of business.
Bringing Benefits
“The entry of foreign insurance companies will have a positive effect on the development of our industry because they can bring technology, capital and expertise,” Daw Sandar Oo, managing director of MI, told OBG. With Myanmar’s insurance industry still in its early stages of development, all three of these components will be needed for the sector to reach its potential. Regarding technology, the sector is some way behind its regional peers. Though most insurers offer online services, with no product or price differentiation (see overview), competition between insurers is restricted, thereby limiting the scope of products companies can sell via digital platforms. Increasing smartphone penetration and the greater use of mobile payment systems highlight the potential of digital platforms to increase insurance uptake in the longer term. However, in the short term the focus appears set to remain on the improved use of technology within companies themselves.
When it comes to capital, foreign firms entering the market have had to make significant investments to launch their wholly owned or joint venture entities. Nevertheless, given the strong potential for expansion exhibited by the industry, the expectation is that these investments will generate significant returns in the medium to long term. Investors in the insurance sector will also likely see their collective presence spur activity in related areas of the financial sector. For instance, stakeholders believe insurance growth will help develop the country’s capital markets; indeed, the absence of major institutional investors from the insurance sector is one of the factors limiting the growth of the Yangon Stock Exchange and the local bond market (see Trade & Investment chapter). Boosting tax revenue could be another indirect advantage, with insurance uptake encouraging formalisation.
Attracting international expertise is also important in a sector where human capital requirements are high and local resources are limited. This constitutes a particular challenge for the country’s life segment, which remains less familiar to the populace than nonlife. To establish a sufficiently trained and experienced workforce, insurance companies rely on hiring expatriates or Myanmar nationals who have lived abroad and gained experience in financial services. However, there are signs this is beginning to change, with bodies such as the Myanmar Insurance Association now running training courses for industry workers in cooperation with international bodies such as the Insurance Institute of India and the General Insurance Association of Japan. Elsewhere, foreign insurers operating in the country through ROs have provided education programmes.
Local Considerations
Still, a particular challenge is developing the financial literacy and awareness of potential customers in the country. As the general public does not yet have much knowledge about insurance products or financial services more broadly, providers may have to take the time upfront to explain the potential benefits in face-to-face meetings. Global firms may also find they must tailor their products to the needs of Myanmar citizens and businesses at prices they can afford. Tackling these challenges will ensure that the population can benefit from increased coverage.
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