Insurance firms suffer under restrictive policies

Outdated policies, uncompetitive premiums and restrictive procedures imposed by the government’s Insurance Business Supervisory Board (IBSB) are hindering efforts by newly established insurance firms to find their feet ahead of a plan to open the market to international firms next year, according to industry sources.

Several privately run local insurance firms have opened for business since June last year when 12 companies were granted licences. The opening of the market broke a six-decade monopoly held by state-run Myanma Insurance.

But with several international firms waiting to enter the market, local insurers are worried that restrictive policies imposed by the IBSB will make it difficult for them to succeed.

As opposed to most international markets, which allow firms to offer competitive prices for their services, the IBSB has predetermined the price of premiums and limited the number of policies private firms can offer to just six, making it difficult for the young local insurers to distinguish themselves from one another, insurers said.

“They [the IBSB] control everything we do as we cannot alter any policy or be true risk managers as the premiums are all set,” said one industry source who asked not to be named out of fear of repercussions.

“It is going to be very difficult for the insurers to become established with the limited number of covers we can offer that are also very basic and poorly worded,” the source said. “Given that each company is marketing the same products/premiums, the main difference between them is the service they provide to accompany premiums.”

While premiums are set, the methods in which they are calculated are also inefficient, industry players said.

With regard to motor insurance, the IBSB requires set premiums based on a grading system that lumps the age of the driver and the type of vehicle into general categories, making it impossible, for example, to give a 65-year-old driver and a 90-year-old driver different rates, said Kunio Asaoka, Myanmar chief representative of Japanese-based insurance firm Tokio Marine and Nichido Fire Insurance Co Ltd.

Moreover, some premiums are set too low and generate losses for insurers, said U Soe Win Thant, general manager of Global World Insurance. Such is the case with snake bite insurance, a popular policy with farmers that generally costs just K500.

“It needs to be updated to something a bit more, perhaps to K5000,” he said.

Premiums aside, the regulatory board also requires each of the firms use IBSB-written actuary forms to assess potential clients, though those documents are dated, difficult to understand and sometimes only in English, while essential questions are missing.

“Some documents such as the questionnaire forms, are confusing to the customers. These things need to change [for there] to be more trust between customers and the companies,” said U Soe Win Thant, adding that such IBSB-issued forms, which insurers are not allowed to alter, are replicated from those in other countries, making some questions redundant.

Copies of actuary forms assessing clients for life insurance policies, obtained by The Myanmar Times, show a number of imperative questions about the health of the client are missing, making it difficult for firms to accurately calculate risk.

While lung cancer kills nearly 7000 people per year in Myanmar, according to the World Health Organization, the forms do not ask whether a client is a smoker.

The forms also fail to ask if the client uses alcohol, or betel nut, or has a record of dangerous driving.

To make matters worse, many questions on the forms are poorly worded, incomprehensible and sometimes only in English, creating confusion on both the part of the insurer and customer.

“It has already created some arguments when the claims appear,” U Soe Win Thant said.

To get around the problem, several firms have resorted to making their own questionnaires, a procedure not sanctioned by the IBSB.

“To be frank, there was no insurance market in Myanmar until last year and so because it is young it is still not so sophisticated, as the questionnaires, in ways, are not adequate and quite primitive,” said Mr Asaoka of Tokio Marine and Nichido Fire Insurance, adding that it was likely these issues would be ironed out as the sector develops.

He said that even if firms were self-regulated, there is still not enough data on Myanmar available for them to properly assess risk, while safety standards are low.

“Many traffic accidents are not reported … and in terms of fire insurance, there are no sprinklers in the buildings, so once a fire occurs it tends to spread more than in other countries,” he said, adding that data issues should start to be addressed with the establishment of an insurance association expected for later this year.

U Aye Min Thein, chairman of Insurance Business Supervisory Board, said the issues would be dealt with in time.

“We plan to liberalize those policies that are out of date and add more services, but we cannot tell exactly when,” he said.

Local insurance firms were required to deposit K46 billion (US$46.66 million) in capital to Myanma Economic Bank in order to establish an operation, an amount firms claim will be difficult to make up in the coming years. In an effort to get an edge in the market, however, firms are reaching into their pockets again by offering to cover certain expenses usually incurred by the clients.

“Some companies are offering to pay medical check-up expenses that are not included in the policy, so they are competing beyond the legal framework,” said Global World Insurance’s U Soe Win Thant, adding that his firm has generated just K90 million in revenue, or about $91,200, since opening his business seven months ago.

That is opposed to state-run Myanma Insurance, who posted earnings of about $47 million in the 2012-13 fiscal year.

Despite these problems, experts agree that these issues will begin to sort themselves out as the market evolves.

However given the nascent stage of the market, some insurers argue current premium restrictions are actually conducive to sustainable growth of the sector.

“It is a sensitive and difficult situation, but in order to let the market grow in a sound manner, it will be necessary to have this kind of policy in place for now,” said Mr Asaoka, adding Japan maintained a similar model for the first 10 years the insurance sector was open as a measure of protecting it from over-competition.

“Too much free market could lead to deficits,” he said.

Private insurers will also soon be entrusted to offer more services, with plans in the works to increase the number of premiums to 10, up from six currently.

“If we make the rules too strict, those firms cannot do anything, but if we liberalise it too much, the market will fall down,” said U Lwin Oo, assistant general manager of Myanma Insurance, adding that it will be easier to modify the rules once the insurance law is updated this year.

Source: Myanmar Times

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