Myanmar opens its borders


Myanmar has opened its doors to private insurers for the first time in more than 50 years, with opportunities for foreign players expected to follow next year writes Nicky Burridge.

Myanmar's Insurance Business Supervisory Board issued the first 12 licenses to private domestic insurance companies in July 2013.

The move, which ended five decades during which government-owned Myanmar (cor) Insurance was the sole provider, marks the beginning of the opening up of the country's insurance sector.

The process is expected to continue with foreign insurers being given permission to do business in the country in 2015, if local players are deemed to be ready for external competition.

The moves also coincide with 2012 democratic elections and an end to the rule of the military junta.

Low insurance penetration
With a population of around 60m (source: CIA Factbook), low insurance penetration rates and a rapidly developing economy, the country offers significant potential for growth. The country has resources such as natural gas, gems, oil and minerals.

Melvin Poon, financial services leader for PwC Myanmar, says: "Given that only 0.5% of Myanmar's population currently holds an insurance policy and total premiums account for less than 0.1% of GDP, there is a huge potential in the insurance market in Myanmar."

But the market also poses several challenges.

After decades of dominance, not only will Myanmar Insurance continue to be the market's largest player, but it will also act as its regulator, setting premium levels for other insurers.

Woo Shea Leen, insurance lead for PwC Myanmar, points out that the 12 insurers who have so far been granted licenses will also be limited to a maximum of six product lines each, namely life, fire, motor, cash and savings, cash and transit, and fidelity insurance.

Poon says: "Competition is going to be fierce among these 12 companies."

He adds: "But all private insurance companies are required to use the same policy premium rates to avoid unhealthy competition on price, resulting in unprofitability."

Service and brand loyalty
However, he added that insurers would still be able to compete on service levels, enabling them to build up significant brand loyalty, which would put them in a good position to compete once regulations were relaxed and the market became freer.

Meanwhile, Myanmar's fledgling insurance market is expected to struggle with a lack of skilled workers with knowledge of the insurance industry and modern technology, following the decades the country spent cut off from the outside world, in addition to a shortage of reinsurance capabilities.

With an average industry wage of just $1,100 a year, it is also questionable whether local people will be able to afford insurance at all.

Poon says: "At the moment, there is much to be done to increase public awareness about the importance of insurance, and what is currently available to protect them and their assets."

He adds: "There has been much distrust in the financial system after previous bank runs left many citizens losing their deposits, and converting the locals to regular insurance will not be an easy task for insurance companies and banks."

Woo expects fire, motor and life cover to be the most popular products to begin with, but he thinks this will change as the market develops.

He says: "Demand from foreign investors as well as local corporations should be strong as factories and infrastructure are built, and properties are developed."

Life first
International broker Willis has set-up a representative office in Yangon.

Adam Garrard, chief executive of Willis Asia, based in Willis's Asia hub in Singapore, says: "As with most developing nations we would expect asset protection products and life insurance to be to be the early movers with liability and medical following."

He adds: "The more ‘exotic' liability products such as D&O and cyber are likely to remain niche products for some time."

Poon expects demand for insurance to grow as the country develops, but he adds: "The major challenge is the great level of uncertainty in a new market and how the insurers can manage this to achieve financial viability."

Meanwhile, there is thought to be insufficient capacity locally to underwrite the insurance risks of Myanmar's developing economy.

Poon comments: "The fastest way to gain this [expertise and capital] is to open up the country to foreign insurance companies, while at the same time balancing it carefully with the right policies and regulation to develop local participation without encouraging graft."

Avoiding protectionism
He warns that the government should avoid protectionist policies that would restrict the benefits of development to certain privileged locals.

Garrard explains: "There are no broker licenses in Myanmar at the moment which means that we are not permitted to transact insurance in Myanmar. We are assisting our multi-national clients as they navigate through the rules and regulations of insurance in Myanmar, but we are not placing insurance in Myanmar."

Instead the broker is helping with the development of the insurance market through assisting firms with the introduction and pricing of new products.

Garrard adds: "We are already working on a number of educational programmes to enhance the knowledge and skills of the country's insurance professionals. We share the view of many developing nations' governments that a strong and vibrant financial sector is a critical component of a sustainable economy."

Hong Kong-based life and health insurer AIA has also receive provisional approval to set-up a representative office in Myanmar.

The office is expected to open later this year, but CEO Mark Tucker stressed that foreign companies were not likely to be able to conduct business until 2015, and he did not expect the group's Myanmar operations to become material for a least five to 10 years.

Meanwhile, other foreign insurers are also thought to be monitoring the situation closely.

Garrard confirms that several of Willis' multi-national clients were "taking an interest" in Myanmar.

Poon says: "With Myanmar popularly considered the final frontier of Asia, it is likely that major global insurance players will be watching the market closely for opportunities to enter at the right time."

He adds: "At present, foreign insurance companies are not permitted to operate in Myanmar, and it looks like development in the sector will be slow and calculated. However, with clearer regulations and more robust infrastructure and support, growth in the Myanmar insurance industry could be phenomenal when it finally opens up."

The market might be opening up quicker than people think as Nippon Export and Investment Insurance has just agreed to write trade insurance for major infrastructure projects in Myanmar for the first time in a nearly a decade, a development that may encourage others to enter this market with huge potential.

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