Myanmar insurance industry poised for reform, awaits liberalisation

Insurance providers in Myanmar can expect a more competitive and promising landscape on which to do business in the near future. With market liberalisation, which will enable firms to offer a wider variety of insurance products, on the government’s agenda, local and foreign providers alike have already started training staff and building management and IT systems to prepare for growth.

However, regulations paving the way for the needed range of products and to end state-controlled pricing over existing ones are still lacking. Meanwhile, a timeline on when an approved regulatory framework addressing how local insurance providers can work with foreign firms has so far been elusive.

Liberalising the insurance sector is important not just because penetration rates in Myanmar remain the lowest in the region. Enabling global insurance providers to operate here will help the country develop a deeper bond market, enabling the government to raise sovereign debt to plug the budget deficit. The government currently relies heavily on central bank borrowing to fund the deficit, which leads to high inflation. Insurance firms are among the biggest investors in sovereign bonds.

Opening up

In an interview with the Oxford Business Group (OBG), Daw Sandar Oo, managing director of state-owned Myanma Insurance, assured investors that plans to open up the sector are very much on the cards.

Daw Sandar Oo said that currently, the government’s focus is on the sustainability of local players. “With the introduction of foreign insurers, local companies will have the opportunity to work with them, resulting in a transfer of technology and expertise that will push the sector’s development,” she was quoted as saying.

She added that upon liberalisation, private firms will be allowed to launch new insurance products that are now restricted and directly compete with Myanma Insurance, which dominates the market with a total of 46 products.

“With a fully liberalised market, every entity will have to invest and push the market. Similar to local private insurers, we will compete against foreign firms,” she said.

According to the Central Bank of Myanmar, total gross written premiums (GWP) amounted to approximately K33.9 billion in the first quarter of 2017, with Myanmar Insurance accounting for 45.5pc of the total.

There are now 12 private insurance firms with licenses to operate in Myanmar. Of these, three are life only, while the remaining nine firms are combined providers covering life and non-life, according to OBG’s 2018 report on the Myanmar economy. Some 10pc of the firms’ paid-up capital has to be deposited in the state-owned Myanmar Economic Bank, with no interest earned. Another 30pc of paid-up capital must be invested in government Treasury bonds.

While private insurers are still restricted in what services they can provide, foreign insurers are unable to conduct business. As of early 2018, some 24 foreign insurance firms had representative offices in Myanmar in addition to the 12 local private firms. Some of those foreign firms include Mitsui Sumitomo Insurance, American International Assurance and Great Eastern Life Insurance, according to OBG.

Promising market

The Myanmar insurance market is hugely untapped, with insurance penetration standing at just 0.07pc of GDP, according to Daw Sandar Oo.

GDP per capita is now estimated to be around $1,232 for 2016, according to data provided by OBG. According to its report, a per capita income of around $5,000 generally indicates a point where there is a sufficient middle class for the insurance market to begin expanding rapidly.

Nevertheless, insurance sector growth tends to match that of GDP. If current GDP growth estimates are accurate, it won’t be much longer before demand for insurance in Myanmar catches up. As such, companies are preparing to harness that potential.

Big opportunities lie in the provision of health insurance, for example. “In Myanmar, 80pc of all healthcare-related expenses is borne out-of-pocket, which is a huge burden for families,” Dr Aung Tun Thet, senior economist and member of the Myanmar Investment Commission, said during a Market Outreach Programme hosted by the Export-Import Bank of India in February.

“There is a huge shortage of proper health insurance policies in Myanmar,” he added.

Daw Sandar Oo warned though, that the lack of awareness about insurance and its benefits will be a challenge for the industry’s expansion. “We have a plan supported by the Asian Development Bank to provide education through financial literacy campaigns, tailored for banking and insurance products. The private insurance companies are also trying hard to collaborate with regulators to educate the market,” she was quoted as saying.

Source: Myanmar Times

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