After years of delays, Myanmar is poised to open its insurance market to foreign companies. This latest phase of liberalisation will bring about long-overdue economic benefits.
By John Pennington
It has been a long time coming, but foreign insurance companies will soon be able to operate in Myanmar. Plans to liberalise the insurance market in this way were first announced in 2011. But only now has the government given the regulations the go-ahead.
Several foreign insurance companies already have a presence in Myanmar with representative offices. However, until now, they have been limited to carrying out research, capacity building and lobbying the government to open up the market and allow them in. That pressure has finally paid off.
Myanmar’s insurance sector is growing but trails others in Southeast Asia
The insurance sector in Myanmar is slowly expanding. That said, even car insurance – the most widely-used insurance – has limited penetration.
Until 2013, the only company offering insurance in the country was the state-owned Myanma Insurance. Then came the first phase of liberalisation when 12 local companies were licensed to operate. However, they still had to adhere to strict restrictions. In 2017, three Japanese firms were allowed to offer services in the Thilawa Special Economic Zone.
Now, 31 foreign companies from a total of 14 countries have opened representative offices. They are among the companies which will now look to gain licenses to offer coverage to the population.
The government will allow three companies to run local subsidiaries; the rest must work in partnership with local firms via joint ventures. They must have representative offices in Myanmar to partner with local firms.
Liberalisation should boost Myanmar’s insurance market – and the economy
Myanmar’s government is heeding calls from others in the region to liberalise its financial market. The Ministry of Planning and Finance hopes that the move will “accumulate the investment needed for the country’s economic development and to develop the non-banking financial sector”.
In economic terms, that optimism is well placed. A company must pay US$14 million for a license. The government will mandate that 30% of that money must be invested in government bonds. These funds will deepen Myanmar’s bond market and further expand the Burmese economy. In this way, insurance providers are an excellent source of investment.
Furthermore, the presence of more foreign companies in Myanmar should strengthen investor confidence. This time last year, confidence was plummeting. By liberalising the insurance market, investors may feel that the government is pushing hard to boost Myanmar’s economy. The allure of further such reforms in other markets will spark investors’ interest.
Foreign companies will bring expertise and technological know-how to the insurance market
Foreign companies have much to offer Myanmar. The competition will be good for the insurance landscape in the country. “We need more competition to be able to provide better services,” admitted U Myo Min Thu, AYA Myanmar Insurance managing director.
Companies will also bring their experience of working in other markets and technical know-how to Myanmar. “This will help us produce better quality products and distribution channels,” he added.
This has proved to be the case elsewhere. In other sectors, inviting foreign investment and cooperation has been a success. Last year, Myanmar opened up its retail and wholesale market. That led to investment from Europe, Japan and South Korea. The Myanmar Investment Commission (MIC) approved four new foreign enterprises in May; it expects them to create 12,000 new jobs.
In other sectors, foreign companies identified growth opportunities in emerging markets. Nissan saw enough promise in Myanmar’s manufacturing sector and expanded its car-building operations there. Carlsberg and Heineken also both saw opportunities for growth and have intensified their Myanmese operations.
There are challenges for foreign companies once they move into Myanmar
Foreign companies moving into Myanmar’s insurance sector is good news. The industry should eventually start to catch up with those in neighbouring countries. One report predicted a penetration rate of 1.4% – on a par with Vietnam – by 2030 if investment arrives.
However, foreign companies will face challenges before they can capitalise on Myanmar’s potential. Capital markets are poorly developed. Avenues for funding are limited. Consumer activity is low.
Companies will also have to work to raise public awareness about insurance policies. They need to convince people that the benefits of life and non-life insurance are worth the fees they charge.
On the other hand, this untapped market and Myanmar’s lack of insurance penetration is a tremendous growth opportunity for foreign companies entering the country.
“In a developing country, joint venture is necessary. Without foreign investment, we cannot develop,” urged Myint Han, an advisor for First National Insurance.
Working with foreign companies will enable local insurance firms to progress and the market to prosper. Myanmese companies are optimistic. “Local firms are eager to see restrictions on products and prices lifted, and welcome government approval for an industry association that will be consulted on the process,” said Thuang Han, CB Insurance director.
Liberalising the market is vital for Myanmar, and the government has taken steps to ensure foreign companies do not dominate. The balance they are trying to strike is allowing enough foreign investment and expertise into the country to drive the market forward without cannibalising its local firms.
Times have changed. Previously, local companies protested against the liberalisation plans, leading to the government delaying its introduction. That put the brakes on the market. The government has now taken a more proactive approach. Liberalisation is one giant stride towards bringing Myanmar’s insurance market back up to speed.