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Changes and Insurance Market

In January this year, the government announced that foreign insurance companies would be allowed to operate in the country. There were mixed reactions to this announcement – some local companies expect better results by cooperating with incoming foreign companies while others are worried about negative results. So, what actually is happening in Myanmar Insurance Market?  Is it really necessary to worry about the negative consequences?

Insurance Market started in Myanmar after the First Myanmar-English War but was controlled by foreign companies for the first 100 years. When Myanmar gained independence in 1948, the foreign firms started to decline. In 1950, the Burma National Insurance Company which later became Myanma Insurance was founded. The market for foreign and private firms gradually shrank. Under the 1959 Life Prohibition Act, life insurance companies were forbidden to operate a new business. Also, the Compulsory Reinsurance Act in 1961 made the Union Insurance Board get 30% of the non-life insurance business. Then, in 1963 foreign insurance companies were nationalised. But 78 companies were still active at the time. By late 1980s, the insurance system completely became a state monopoly under the State-Owned Economic Enterprises Law.

Today insurance laws and regulations are getting lighter. In 1988, there was a chance to change in terms of political, economic, and social issues. The Insurance Business law and the Insurance Business Rules were codified in 1996 and in 1997. Moreover, the Insurance Business Supervisory Board (IBSB), a body under the Ministry of Finance and Revenue was established under the 1996 law. However private insurance companies were not able to start for some reasons. The market was operated as the Uni-Polar Market by Myanma Insurance since 1952, but in 2012, the government allowed 12 private insurance companies and made them operational within six months and significant changes began.

There was a strategy called “Changing Myanmar Insurance Market” behind changing from the 60 year-old Uni-Polar Market to the Multi-Polar Market. To achieve an international status, it needs to take four big steps, (1) Allowing Private Insurance Market, (2) Codifying New Insurance Laws, (3) Building A Reinsurance Body, and (4) Building A Training and Educating Organization, supporting three institutions of Regulatory Body, Reinsurance Body, and Training Body. If all these steps are implemented properly, Myanmar insurance industry will be growing quickly. So far, 12 local private insurance companies started in 2013 and new rules and regulations are already being worked on. Recently, five foreign life insurance companies have been allowed to operate in Myanmar.

However, restrictions still exist. Insurance Business Regulatory Board (IBRB) allowed only 14 products out of 26 to private insurance companies. Remaining 12 products are still kept by Myanma Insurance. Moreover, Myanmar hass the lowest penetration index of insurance in ASEAN or Asia, as the current penetration of general insurance (non-life insurance) is still under 0.1 GDP, and life insurance is less than 0.1, too. So it will be a very hard time for local companies operating life insurance when foreign companies come in.

[explain 01. GDP, is it %?]

As everyone knows, there is not enough skilled-labour force in the industry. Signing MOU between Financial Regulatory Department (FRD) and Insurance Institute of India (III) meant a lot to Myanmar insurance industry. It was like taking the first big step to set up a much-needed training body in the industry, and now, there is even an insurance institute called “Chartered Insurance Institute Myanmar.” However, these are not enough to overcome challenges. 

According to Myo Min Thu, Managing Director of AYA Myanmar Insurance, there are always good things when the government open and liberalise a market. For economy, it can create more job opportunities and capital injection, and increase money circulation, and as for the insurance industry, it can develop new products and strengthen the local market. On the other hand, some people worry that local firms will be faded away when the foreign ones come in. So, what the other countries do for their insurance market? In neighbouring countries, markets are open but not 100 percent. They support joint venture to protect their nascent growing markets and companies. “When the market was about to be liberalised, we already suggested the government to allow joint ventures. Also, we, local firms have already been given pressure by FDI. So it will affect more or less to us when the foreign companies are allowed to operate as 100 percent foreign owned businesses,” said Aung Ko Ko Tin Win, Deputy Managing Director of First National Insurance. He also said, “In Malaysia, there are over 40 insurance companies, but only two of them are local firms. The consequences of this effect will occur in the next 30 years. We also welcome foreign companies, but we have to be joint venture partners with them. It is very dangerous for the ones who can’t partner with the foreign ones.”

In the history of Myanmar’s insurance sector, the industry was closed for decades but it is now open and liberalised. It is also growing quickly and it could be a big challenge for all local insurers, consumers and the government if local insurers can not compete and fall away.

However, it happens every time when an industry is open to international players. “When Coca Cola came into Myanmar, local beverage firms worried about unfair competition. But we told them not to worry too much. We have knowledge of the local market and people. How big the foreign companies are, they will be fumbling since they don’t know the people and market of our country,” said Professor Dr Aung Tun Thet.