Safety first: The entry of private companies should shake up the insurance sector

For the first time in 60 years, Myanmar has permitted private insurance companies to compete with the state monopoly, granting 12 licences in June 2013 to local companies as part of a wider set of reforms aimed at making the financial system more market-driven. But Myanma Insurance, the country’s insurance monopoly, will continue to remain the sector’s largest player and regulator, keeping a close eye on these newcomers in the upcoming “test period” lasting three to five years, after which foreign insurers are to be denied entry.

Market

Only 0.5% of Myanmar’s population currently holds an insurance policy, while total premiums account for just 0.064% of GDP, a low figure when compared to the EU’s average of 8.5% of GDP, and even regional markets such as Cambodia, where total premiums account for 0.2% of GDP.

It is important to note that the country still ranks far below its peers in terms of insurance penetration and density, largely due to the lack of competition and the limited services of its single provider.

Up until now all those wishing to insure in the country had to go through Myanma Insurance, a state-run entity established in 1952 soon after the country’s independence and the only one of 70 insurance companies to survive the nationalisation programme launched by the government in 1963.

The company has recording a high gross premium growth of 48.5% in the fiscal year 2012/13 as compared to the previous year, and shows a compound annual growth rate of 22.6% on premiums for the past five years. In the same period, profits have risen 51% on a compound basis to reach MMK38.2bn ($42m) in the fiscal year 2012/13.

Policies

Myanmar Insurance initially offered only life policies. However, today it provides everything from snake bite to travel coverage, boasting total funds of $3.7bn in 2007 that were split between its life fund ($646m), general fund ($2.9bn) and reserve fund ($152m). It currently employs 900 staff across the country through 38 branches, and has around 700 agents who may underwrite policies.

Of the 46 different products that can be sold to Burmese citizens, over two-thirds of the policies written fall under the fire insurance segment, followed by marine, motor and life, respectively. However, the proliferation of policies in certain sectors has led to unexpected demand from some areas.

“Recently we have had many more requests for aviation insurance,” said U Sein Min, general manager of Myanma Insurance. “Myanmar now has eight airlines and 42 aircraft, all of which need insuring.”

The company is in turn reinsured through a number of treaties with international insurers. A tender is held in December of each year for international insurers to bid for these treaties, and firms such as Lloyd’s and Munich Re have been known to win in the past. The company’s long history in Myanmar has made it a solid platform for those looking to insure within the country, and it will maintain market control over the coming years. Although this reform in policy marks an important step towards a competitive market, it will be many years before Myanma Insurance relinquishes its current position.

“We will be working together with the private insurers,” said U Sein Min. “We will be pushing and supporting them over the test period and take things slowly. Vietnam, for example, took 10 years before it completely opened up its insurance market and now it is sustainable.”

Newcomers

Nevertheless, the new private insurers are hoping to tap into some of the extraordinary growth in the market, but will be limited to a maximum of six of these 46 products in the coming years.

These are life, fire, motor, cash and savings, cash and transit, and fidelity insurance.

Of the 12 new companies entering the market, three will offer only life insurance, requiring MMK6bn ($6.6m) of paid-up capital to operate, and the other nine are planning to roll out the maximum range of six policies, requiring MMK46bn ($50.6m). According to the government, 30% of this capital must be invested in treasury bonds and 10% deposited in the state-owned Myanmar Economic Bank as reserves.

“We have chosen 12 private companies, and at this early stage it’s too early to allow in foreign competition because our domestic companies are only at an embryonic stage and cannot compete,” said the deputy minister for finance and revenue U Maung Maung Thein, during a meeting at Myanma Insurance in Yangon on April 3.

Those companies set to start operations over the coming year are Grand Guardian Insurance Public, IKBZ, First National, Young, Capital Life, Global World, Excellent Fortune, Pillar of Truth, Ayeyar Myanma Insurance, Aung Myint Moe Min, Citizen Business Insurance Public and Aung Thitsar Oo.

“This is all new for us, we will be learning as we go and we will continue to be heavily regulated,” said U Nyo Myint, managing director of IKBZ, the first private insurance company to register and the latest subsidiary of the giant KBZ Group, which runs the country’s largest bank.

All new players including IKBZ will face strict pricing regulations preventing them from competing on charges. “We can only compete on services,” said U Nyo Myint. As such, IKBZ has plans to build three branches and hire 200 employees by the end of 2013, gaining a market share that will serve them well once regulations are loosened further.

“We expect growth mainly from fire insurance and natural disaster insurance such as floods. This is where we see most demand,” said U Nyo Myint. “But our biggest challenge is education. We need to educate people on life insurance and reasons to insure, and what is now available.”

Although the insurance providers are up and running, there was until recently no law regulating exactly what they can and cannot do. The law originally enacted in 1966 was re-written in 2013 to provide these new companies with a legal framework, but as of July 2013 the agreement is simply to work closely with Myanma Insurance and to verify all activity through the state.

Foreigners

International insurers have been vying for the chance to tap into Myanmar, but have so far been kept at bay. The government’s long-term strategy is to give local firms a few years to grow before introducing foreign insurers around 2015, according to officials. However, this date may be shifted to 2020 should local competition not be up to desired standards by that time. Even so, this has not stopped the interest of large companies such as Prudential Financial, Britain’s biggest insurer, and AIA, Asia’s third-largest insurer, who may be moving in much quicker than expected.

“We are looking all the time at global opportunities and Myanmar is on our radar,” said Prudential’s CEO Tidjane Thiam in September 2013.

Japanese firms have made a much firmer footprint so far, as non-life insurers such as Tokio Marine & Nichido Fire Insurance, Mitsui Sumitomo Insurance and Sompo Japan Insurance already have representative offices in country. In 2012, Japan’s Taiyo Life was granted a licence to set up a representative office in Yangon to prepare for a possible entry into the domestic life market.

However, for companies looking to get insurance within Myanmar, the state provider is the only option. “Foreign companies should come directly to us,” said U Sein Min of Myanma Insurance.

Snags

The government has maintained a cautious attitude, and local players are very aware of the dangers in rushing ahead with foreign partnerships and opening the floodgates to foreign firms.

“As Myanmar’s economy grows and our international relations expand, more foreign companies will enter the country and big international insurance firms will want to do so as well, but we need time to scrutinise those firms,” said the deputy minister for finance and revenue, U Maung Maung Thein.

Further to this, there are also serious challenges involved in building a solid client base in Myanmar, and developing the local market is likely to take time. Many citizens have come to distrust the financial system after bank runs left many without the funds they deposited. Converting people to regular insurers is no easy feat for local insurers and banks alike.

“The entry of foreign insurers would help the industry to grow faster, but monopolising the market should be discouraged. It would be best if the government, the foreign insurers and the locals could come up with a way to compromise and create a win-win situation for everyone,” said U Yan Paing, director of Capital Life Insurance.

Market-Driven Results

Therefore, although several significant developments are in the offing over the next few years for the insurance sector in Myanmar, it remains the case that progress will be slow and calculated. Consequently, foreign insurers will have to wait longer for market-driven results.