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Liberalization presents great opportunity for insurers in Myanmar

Due to its future growth potential, liberalization of the Myanmar insurance sector is believed by many to be the dawn of a new era.

Due to its current low penetration and future growth potential, the much-awaited liberalization of the Myanmar insurance sector is believed by many to be the dawn of a new era for the country and its nascent financial services sector.

Currently, the insurance market penetration (the ratio of premium underwritten in a particular year to the GDP) in Myanmar is at a low base of 0.13%. Penetration rate for the non-life and life segments stand at 0.10% and 0.03%, respectively.

It is only from 2012 that private local insurers were allowed to start operating. Historically, there were limited products which could be sold. The only endowment products available were short-term endowment products, with term of five years or less. Yield was unattractive. Medical insurance had limited coverage.

Recently, new products have been developed and will be pushed out into the market once they receive approval from the government. These include education endowment, credit life, and medical insurance with wider coverage instead of niche conditions such as snake bites. A wider variety of products is needed in order to provide traction and further enhance product penetration.

The liberalization of the sector, wherein a limited set of foreign insurers will be allowed to set-up green-field operations and a few others will find suitable local joint-venture partners, will provide both capacity and expertise and lead to accelerated growth. As this is coupled with favorable demographics with a growing middle-class population, rising disposable incomes and regulatory support, EY forecasts that insurance penetration may reach 1.39% by 2028 with life insurance having penetration of 0.74% and non-life insurance 0.65%.

EY - Liberalization presents great opportunity for insurers in Myanmar

Focusing on traditional products to build a solid foundation

The total insurance market in Myanmar in 2018 was USD85 million, in terms of Gross Written Premium (GWP). EY forecasts that the market size could potentially reach USD3.2 billion by 2028.

EY - Liberalization presents great opportunity for insurers in Myanmar

The non-life segment is expected to grow from a GWP of USD67 million in 2018 to USD 1.7 billion by 2028. Currently, fire and motor insurance account for c.70% of the premiums in the non-life sector. Motor insurance is an area of growth given that only c.10% of motor vehicles in Myanmar currently have comprehensive insurance. A growing automotive industry and consumer awareness on the importance of insurance products will likely contribute to the continued popularity of this product in the future.

Meanwhile, fire insurance will also continue to be a major contributor in the non-life segment, largely due to increasing home ownership and accompanying bank mortgages. The compulsory nature of fire insurance for mortgaged properties will provide sustained demand for it in the future.

As for the life segment, it is expected to grow from USD18 million in 2018 to USD1.5 billion by 2028. Currently, the small size of this segment can be attributed to lack of consumer awareness, low availability of products and limited disposable incomes. Such challenges can be turned into opportunities with better product accessibility (suitability, pricing, and availability).

The sector is likely to grow rapidly in the next 10 years especially once the current challenges are overcome by increased capacity and capability of the sector, which the foreign insurers will bring. Group-life and endowment products, which in 2018 accounted for 38% and 59% of gross written premium (GWP) of the life segment, respectively, are expected to be the biggest contributors to growth in this segment. Newer products such as short-term endowment and health insurance are expected to also contribute to the growth in the sector.

The importance of a robust distribution network

EY - Liberalization presents great opportunity for insurers in Myanmar
EY - Liberalization presents great opportunity for insurers in Myanmar

For any market, distribution is key in creating accessibility for consumers. The three distribution channels for insurance products in Myanmar are independent agents, bank-tied sales and walk-ins at branches. The agency and bancassurance channels represent the majority, accounting for 25% and 40% of GWP as of 2018, and are expected to account for 45% and 35% of GWP by 2028.

The growth of the agency channel in terms of share in the mix will be driven by the growth of the tied-agent model, thanks to the expertise of the foreign insurers that will be entering the market.

Bancassurance is expected to continue its contribution in growing the insurance business in the country. Many of the existing insurers use their affiliate banks to distribute products. This channel gives insurers access to customers at point-of-sale whether it is shopping for a mortgage or obtaining financing for a motor vehicle.

The bancassurance channel is expected to overtake the agency channel in terms of volume in the coming years. The key for insurers to effectively reach the market and gain market share in Myanmar is to leverage on best practices in other markets to build and scale their distribution networks and diversify the channels.

Where will the insurance sector’s customers come from?

In the retail segment, EY sees the middle class to be the focus for insurers as income is expected to expand possibly translating to a higher propensity to spend on insurance products, either life or non-life. Although business and group customers currently make up 85% of the GWP, the share is expected to change when life insurance products, which focus on retail customers, gain popularity.

Due to the largely agrarian and rural demographic of the country, there are also considerable opportunities for microinsurance to increase financial inclusion, especially in the less developed areas of Myanmar. However, tapping on to this opportunity will require a novel and different way to develop and sell products. Such mass-market opportunities are seen further down the road, but insurers will start address this segment in the near-term for the fear of missing out.

Conclusion

In conclusion, the liberalization of the insurance market in Myanmar will not only boost growth in the sector but also contribute to the growth of the financial services sector in general. The government’s allowing foreign players to bring in capacity and expertise will lead to upskilling, innovation and growth in the sector. Given the relatively nascent sector, it is vital for both local and foreign players to understand the market, specifically the needs and aspirations of the Myanmar people. Only on the back of this understanding can insurers build the foundation and awareness on the importance of insurance products, and then the channels and platforms to launch and scale their business.

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EY - Patrick Hanna

Patrick Hanna

Partner, EY Financial Services
Ernst & Young Solutions LLP
+65 6309 6720
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Varun Mittal

EY Global Emerging Markets FinTech Leader
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Vanessa Lou

Director, EY Actuarial Services
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