Insurance in Myanmar: Spreading the Risk
By Stephen Weedon 24 May 2017
Even though insurance has been around for more than 150 years in Myanmar, it has all the makings of a new phenomenon. Before independence in 1948, there were between 80 and 100 insurance firms in operation. Functioning in a republic with a short stint of democracy at its birth and subsequent decades of military rule, the insurance market became increasingly monopolistic and nationalized. Liberalization was supposed to have happened in the late 1990s, but the Thai Baht Crisis postponed it. Presently, in a more open ecosystem, there are 12 domestic insurers including Myanma Insurance, the state insurance company, and local market leader, IKBZ, along with 24 foreign entities. The current insurance law only regulates local insurers. Competition is stagnant and there is a definite lack of insurance products and services.
Despite the long history of insurance and a now rapidly growing economy, Myanmar is still a least developed country, a fact that makes the sector parlous. Research I conducted on this topic, while working with Consult-Myanmar Co Ltd in Yangon, consisted of six interviews with six different institutions: one domestic bank, one foreign bank, two domestic insurers, and two foreign insurers. All six experts interviewed agreed that the government needed to further liberalize the industry. Firms must be allowed to have their own autonomy, to create their own products and services, and to increase market rivalry. At the moment, local insurers can only work with local companies (with the exception of a few overseas insurance firms working with Burmese businesses in the Special Economic Zones), while foreign ones only work with their foreign counterparts. Some specialists stated that the insurance law needed to be amended to also regulate foreign insurers as well.
Whether the insurers are native or foreign and public or private, there is a consensus that the sector is challenging. Like the financial industry itself, it is nascent and underdeveloped. Inflation is high while incomes remain low. Infrastructure continues to be poor. For the first time in thirty years, a proper census was conducted in 2014 and it was revealed that Myanmar has around 51 million people as opposed to 60 million. Depending on whom you talk to, the percentage of the population with a bank account remains under 10 percent or under 20 percent. Due to the lack of data and statistics, it is very difficult to conceptualize trends; a necessary task if an actuary is to do his or her job.
Bank loans are only based on collateral. One does not need car insurance to own a car. Players in the insurance field continue to recommend that the government make insurance mandatory in order for customers to obtain bank loans. For example, to finance the purchase of a house or automobile, one would be required to have insurance. One professional made reference to Myanmar’s closest socio-economic cousin, Cambodia. Due to the many similarities throughout their histories, Myanmar could adopt the Cambodian approach of encouraging foreign insurers to cater to native banks and design unique financial products. After all, when banks have access to overseas insurance pools, the value of what they offer increases. All of the experts that I interviewed stressed more cooperation and joint ventures between non-native insurers and local firms, with one person even advocating merging all 12 native insurers into a more substantial company that could oppose foreign competitors. In short, the country needs investment in the form of insurance. Otherwise, the already cash-strapped government is on the hook. This is about spreading the risk when disaster strikes and increasing quality of life. Individually, each local company is too small to be competitive when going up against foreign insurers, which have their risk spread over multiple countries.
Socially, insurance is an uphill battle. After decades of repressive rule, most of Myanmar’s citizens lack trust in institutions. Furthermore, the basic definition of and overall need for insurance is lost on many Burmese. People simply do not understand insurance. One interviewee even described some of the population as “superstitious” in this regard. Another expert expressed concern about mistrust within the local insurance business toward foreign competition. All of those interviewed strongly agreed that the government must sensitize the public to the who, what, where, and why of insurance.
While both native and foreign firms conduct training with Burmese citizens, there is no tertiary education program for insurance. Only a few local people have professional insurance certification from established institutions outside of the country. Due to the lack of insurance in the country, there are no group employee benefits for local staff. Non-governmental organizations on the domestic level do not deal with insurance. Obtaining skilled labor is an issue. Because so few Burmese have a certificate or diploma in insurance, firms in the field need to hire expats to fulfill those duties, which can be expensive and fails to give a job to a local. Across the board, insurance firms volunteer their time to educate the locals. However, all experts interviewed agree overwhelmingly on what needs to happen: the creation of an insurance association in Myanmar. At the moment, there is a working document for such an institution under review by the government with the help of World Bank consultants. Until that is approved, there is no effective institution for native and foreign firms alike to promote insurance, exchange ideas and cultivate a vision for what the sector wants to be in Myanmar in 10 years.
Perhaps the most precarious aspect of insurance pertains to health. The majority of the population cannot afford health insurance. As of 2012, free medical services are offered by the government, but are on a line item budget basis. In other words, if one goes to the hospital or a clinic, he or she does not know if it will be free. The medicine quota might already be exhausted!
The realm of insurance in Myanmar is in a state of limbo. However, there is strong potential in the commercial and industrial sectors with the influx of overseas investment. As part of the ASEAN community, there should be foreign insurers operating in and regulated by Myanmar by 2020. All experts interviewed expressed a compelling sense of optimism. Most of them are confident that Myanmar will have an efficient insurance industry within 10 years. However, the hard work needs to start today, not tomorrow. 2017 will be a telling year.
Stephen Weedon is a Master of Public Administration student at Tsinghua University. The above article is part of a research project on the evolution of the financial market in Yangon that Stephen was involved in during his time at Consult-Myanmar Co Ltd in Yangon.
This article originally appeared in Tea Circle, a forum hosted at Oxford University for emerging research and perspectives on Burma/Myanmar.