Before The Market Opens: How is insurance in Myanmar currently regulated?
It is widely anticipated that Myanmar will open its insurance sector to foreign participation this year.
It is widely anticipated that Myanmar will open its insurance sector to foreign participation this year. While this is a cause of great interest in the industry, and some regulatory changes will inevitably occur together with the opening, potential investors should not overlook the legal framework already in place and the practical realities of the market.
In this paper, we explain the current regulatory regime for insurance and also take a brief look at current market conditions.
Who is the regulator?
The Insurance Business Supervisory Board, which is part of the Finance Ministry. It has six members and a secretary. The current Chairperson is Dr. Sandar Oo.
What are the relevant laws?
Myanmar currently has an Insurance Business Law 1996, and underlying Insurance Business Rules 1997, which form the backbone of the regulatory regime. The Rules are not a parliamentary act but are just a notification from the Ministry of Finance; it is straightforward to amend them.
The Law and Rules are quite basic, and many aspects of insurance business that are typically regulated are overlooked. Insurance takeovers, reinsurance, selling techniques and payments to intermediaries, for example, are substantially unregulated.
Certain key points of the Insurance Business Law are:
- Licenses are required for insurers, underwriting agents1 and brokerages. For locally-owned businesses, applications are considered by the regulator. Any licensing of these businesses with foreign investment must be permitted by the Finance Ministry, with approval of the government. An exception to this is where the business has been permitted by the Myanmar Investment Commission, the investment promotion body.
- There is no licensing of insurance personnel or brokers at a personal level.
- Anyone conducting insurer or underwriting agency business without a licence may be imprisoned up to 5 years and/or fined up to 500,000 Kyats (approx. US$370). Conducting insurance brokerage business without a licence exposes the offender to imprisonment up to 3 years and/or a fine of 300,000 Kyats (approx. US$220). The custodial sentences would extend to directors of the offending enterprise.
- Licenses are not transferrable, which may materially impact upon insurance mergers and acquisitions.
The following must be approved by the regulator:
(i) premium rates;
(iii) policy forms;
(iv) advertising materials;
(v) opening of local branch offices;
(vi) obtaining non-admitted direct insurance. This permission will only be granted when local insurers have declined to provide the requested cover.
The regulator also has broad scope to attach additional operating conditions to any insurance business licence that is granted.
- If any insurance business licence is cancelled or surrendered, assets must remain in Myanmar so as to cover the liabilities of the business.
- The law is silent on reinsurance, other than a requirement to submit reinsurance programs to the regulator and empowering the regulator to direct insurers & underwriting agents to effect reinsurance.
Some key points of the Insurance Business Rules are:
- The minimum capital required for life insurance business is 6 billion Kyats (approximately US$4.4 million), while non-life insurance requires 40 billion Kyats (approximately US$29.5 million). Composite insurance is possible, and the capital requirement is 46 billion Kyats.
- Of this, 10% must be deposited at the state-owned Myanmar Economic Bank and 30% must be invested in Government Treasury Bonds.
- No minimum capital requirement for brokers is stated.
- Insurers must establish insurance funds, to be held in a Myanmar Economic Bank account. Life insurers must additionally establish a Life Insurance Policyholders Protection Fund.
- The principal officer of an insurer, underwriting agent or broker must have certain minimum qualifications.
- Life business must be transacted in accordance with the recommendations of an actuarial valuation report.
- Insurance brokers must maintain professional indemnity insurance.
It is also worth noting that, under the Third Party Liability Insurance Rules 2003, obtaining motor insurance against third party liability with Myanmar Insurance is compulsory.
- In terms of the practical reality of the market:
- In addition to state-owned Myanma Insurance, 12 private insurers have been licensed. These are all 100% Myanmar-owned.
- Three Japanese insurers have also been temporarily licensed to insure foreign investors in the Thilawa Special Economic Zone.
- Foreign insurance and brokerage groups can apply for licenses, but the current policy appears to be to decline applications. The insurance sector is currently closed, for all practical purposes, to overseas licence applicants (although, as noted above, this is expected to change shortly).
- Many insurance and brokerage groups have established Myanmar representative offices. The Myanmar authorities have a track record of requiring foreign businesses to have a presence in the country for a number of years before being prepared to licence them.
- All Myanmar-related U.S. sanctions were revoked on 7 October 2016. However, certain Myanmar nationals/businesses remain blacklisted under other programs (e.g. the counter narcotics and North Korea programs).
- Myanma Insurance offers over forty insurance products. The private insurers have been permitted to offer twelve.
- There are caps on maximum pay outs by private insurers. If they wish to offer policies assuming liability in excess of those caps, they have to pool the risk.
- Given that policies and premiums are uniform, the private insurers have to differentiate themselves through their distribution channels.
- There is a lack of public faith in the Myanmar banking system and a cash economy remains in place. Bancassurance is unlikely to be a viable channel in the near term.
- Large-scale, corporate brokerage is substantially unknown in the country.
- At a personal level, insurance coverage is not really a consideration in most households and insurance penetration rates are very low.
Defined as “a company that has the right to underwrite on behalf of an insurer”.
Download full version of the article on Myanma Insurance - January 2017