Opening up for investment, the sector is set for significant expansion

The insurance sector is at an early stage of development, with private insurers just beginning to develop since 2013 after a long period in which the sector was fully nationalised. Twelve companies, most of them linked to major banks or conglomerates, were licensed to launch insurance businesses in May 2013, and foreign insurers were expected to be invited in 2015 to apply for licences to operate within the Thilawa Special Economic Zone.

The market is currently relatively small and still dominated by the former state monopoly insurer, but it is expected to grow rapidly as economic development and insurance penetration catches up to regional peers. Asia Insurance Review recently estimated the market could be expanded to $2.8bn of premiums annually by 2030, if GDP grows by then to $200bn and insurance premiums grow to 1.4% of GDP, the level recorded in Vietnam and the Philippines in 2012. The insurance sector was nationalised in stages between 1952 and 1964, and in 1975 was put under the control of state-owned Myanma Insurance, which held a monopoly until 2013 and continues to be by far the largest insurer. Myanma Insurance is under the Ministry of Finance and still holds monopolies on three categories of compulsory insurance, including automotive third-party liability insurance, life assurance for civil servants, and general liability insurance for companies whose operations are deemed to pose a risk to state-owned property.

Licensing Process

A separate regulator, the Insurance Business Supervisory Board (IBSB), also under the Ministry of Finance, was created in 1996 and empowered since then to license and regulate insurers, underwriting agents and insurance brokers. However, plans to open up the sector were then put on hold and not revived until after the lifting of most international sanctions on Myanmar. The IBSB launched a licence application process in September 2012, receiving 20 applications. Of the 12 companies accepted, six received dual licences for life and non-life insurance and six received licences for life insurance only. Life-only licences are significantly cheaper, requiring only MMK6bn ($6m) of paid-in capital, whereas dual licences required a high minimum paid-in capital of MMK46bn ($46m). Regulation of private insurers is strict, with premiums fixed by the IBSB and no reinsurance allowed.

License Breakdown

Of the six insurers with dual licences, four are affiliated with banks: IKBZ Insurance, owned by Kanbawza bank; Ayeyar Myanmar Insurance; First National Insurance, owned by the Htoo Group, which in July 2014 was reported to be selling control of Asia Green Development Bank; and Aung Thitsar Oo Insurance, owned by the same military holding company that controls Myawaddy Bank. The other two are controlled by major conglomerates: Grand Guardian Insurance, owned by Shwe Taung Group; and Global World Insurance, owned by Asia World Group.

The six insurers awarded life-only licences are Citizen Business Insurance, owned by Cooperative Bank; Aung Myint Mo Min Insurance, owned by the military holding that controls Innwa Bank; Capital Life Limited Insurance, owned by Capital Diamond Star Group; Great Future International Insurance, owned by Young Investment Group; Excellent Fortune Insurance, owned by the Excellent Fortune Development Group; and Pillar of Truth Insurance, owned by Parami Energy Group.

Non-life insurers were initially licensed to operate in limited areas, namely fire, non-compulsory motor, fidelity, cash-in-transit and cash-in-safe insurance. Motor and fire insurance are the most rapidly developing fields, thanks especially to support from banks, which require supplementary private motor insurance on automobiles financed by hire-purchase and require fire insurance on buildings put up as collateral for loans.

The IBSB in 2014 permitted non-life insurers to offer a type of local travel insurance, which pays passengers up to MMK3m ($3000) each in case of highway accidents on tour buses. The Ministry of Finance began working in 2014 on plans to begin licensing private health and credit insurance.

Main Business Lines

Myanma Insurance remains by far the biggest insurer with MMK38.2bn ($38.2m) of net income in the 2012 fiscal year, ending March 2013. Compulsory automotive insurance and life insurance for civil servants are its main business lines. The company also earns a significant portion of its income through fronting arrangements in which a foreign insurer takes the risk and Myanma Insurance takes a fee of up to 20% of the foreign insurer’s premium for writing a local policy.

Private insurers had written some 65,000 motor insurance policies, 22,000 life insurance policies and about 11,000 fire insurance policies in the industry’s first year of operations, according to the company’s data. Private insurers sell comprehensive motor insurance with coverage up to MMK50m ($50,000). Compulsory motor insurance, sold only by Myanma Insurance, is a low-premium product that pays only up to MMK500,000 ($500) of liability to third parties.

Without the bank requirement that any car or building they lend against be insured, not many private individuals are thinking about buying insurance. That’s beginning to change, however, as private insurers have been trying hard to educate the public about the benefits of being insured.

Indeed, due to the recent surge in car ownership and lax licensing standards, Myanmar has a relatively large number of new and unskilled drivers and relatively high accident rates, especially in Yangon. Companies are learning through experience how to differentiate their customers’ risk profiles.

Insurers are already lobbying hard for a liberalisation of regulations, which fix premiums and the amount of coverage and precisely limit the risks that can be covered. As a result, insurers can do very little to distinguish themselves and rely largely on the strength of their agent networks and bank relationships to win clients. Insurers also have little flexibility to adjust premiums according to risk profiles. The IBSB has said it will eventually liberalise the regulations, however, it is yet to set a timeline for this.

There are other ways to sell insurance, however. Microfinance, already well developed in neighbouring countries, is one method. For example, the government adopted a microfinance law and established the dedicated Myanmar Microfinance Bank in 2013. MyKyat is planning an eventual move into microfinance as a second phase of its business plan (see Banking overview).

U Thura Soe-Paing, co-founder of Frontier Technology Partners, the company behind myKyat, told OBG the service would be launched in Yangon and expand from there, serving first as a convenient alternative to visiting the bank and as an alternate electronic payment system to bank cards. “As our agent network increases and mobile networks roll out, we will be able to have an agent anywhere where there is mobile coverage. It is a lot easier than having a bank branch,” he said.

Foreign Insurers Line Up

As occurred in the banking sector prior to the recent issuance of licences to foreign banks, many international insurers have established representative offices in Myanmar. The insurers present by the end of 2014 included Japan’s Sompo Japan Nikkonkoa, Mitsui Sumitomo, Tokio Marine & Nichido Fire and Taiyo Life; the US groups Prudential, MetLife and ACE Group; Canada’s Manulife; Hong Kong’s American International Assurance; and Singapore’s Great Eastern Life and Pana Harrison. British insurance broker and adviser Willis also had an office. While some of the foreign groups, especially life insurers, are present primarily to prepare for an opening of the market, others are de fronted by Myanma Insurance.

The government is planning to initially license foreign insurers to operate only within special economic zones (SEZs), as written into the SEZ law passed in January 2014. The first SEZ, at Thilawa around 25 km southeast of Yangon, is expected to begin operating in 2015. The SEZ is backed by the Myanmar and Japanese governments, as well as three major Japanese companies and a coalition of top Myanmar business groups. The SEZ will primarily host foreign manufacturers, with 12 of the 26 investors that had committed by November 2014 from Japan.

The move to allow foreign insurers into SEZs will improve the investment conditions in the zones essentially by allowing investors to insure directly with international insurers without paying Myanma Insurance’s fronting fees. But it will be a relatively small and specialised market and it is unclear if the licences will extend to ensuring people working in the SEZs.

No plans have been announced to admit foreign insurers into the broader market, and as in the banking sector, local insurers are pushing for time to grow before foreign insurers are allowed in.