Posted on Nov 16, 2011 by Sergio Ulloa
It appears as if Cambodia could be the next frontier territory for multinational insurance companies looking for sustainable premium growth in emerging markets, according to the news that Canadian life insurance giant Manulife Financial is looking to establish a subsidiary in the small Southeast Asian country.
In a statement released this week, Manulife confirmed that they had received 'approval in principal' from Cambodia's Ministry of Economy and Finance (MEF) to found a fully foreign-owned life insurance operation in the country. The Toronto-based insurer is now working closely with the Cambodian government to accelerate through the final stages of the business licence approval process, and are looking to establish their head office in the capitol city Phnom Penh as soon as feasibly possible. Once the business is active, Cambodia will be the eleventh Asian country Manulife
has an insurance operation in.
Further details about Manulife's upcoming insurance venture have yet to be disclosed. According to the Cambodia's 2002 insurance laws, the new insurer would have to have a minimum paid-up capital of US$7 million to meet solvency requirements and begin operations. For a large multinational like Manulife, getting the necessary infrastructure, capital and regulatory framework up to date will probably prove easier to accomplish at first than getting the attention of the local Cambodian client base, which remains largely unaware of many insurance products and are often priced out of many of the insurance options available locally.
As part of their agreement to enter the Cambodian insurance market, Manulife said that they would support initiatives made by local government and aid organizations to help expand and professionalize the country's domestic insurance sector. This could include public education campaigns to increase general consumer awareness of insurance matters, as a well as other programs designed to 'build confidence in the industry.'
David Wong, Senior Vice President and Regional Executive for Manulife's ASEAN Operations, commented in the briefing that a move into Cambodia's life insurance market demonstrated the company's continued "commitment to Asia and our success as a forward-thinking leading insurance company that offers strong and reliable risk protection products and services to our customers." Wong added that Manulife were appreciative of the Cambodian government's ongoing support and that now was time for the international insurance industry to recognize and invest in the Southeast Asian country's emerging demands for adequate savings and protection tools. "I am very excited to see Manulife expanding its footprint into Cambodia. We hope that in Cambodia we can match the achievements of Manulife in other ASEAN markets and help develop Cambodia's life insurance industry to better serve the emerging life insurance needs of its population," Wong remarked.
Cambodia's insurance industry only began in earnest in 1990 through the establishment of the state-backed company, the Cambodian National Insurance Company (CAMINCO). After decades of limited development in the local insurance sector, Cambodia's gradual transition to a free market economy in 2000 has fostered considerable economic progress, and this in turn enabled private sector and international insurers to enter the country which would, in turn, revitalize the protection and savings market. Today, Cambodia's insurance market comprises of six general insurance players (lead by Forte Insurance) and one life insurance company, Cambodia Life, which is a newly formed joint venture between the government and four Asian firms
. There is also one domestic reinsurance company, the state-owned Cambodia Re. There are no licensed insurance brokers in Cambodia at present.
To date, insurance companies in Cambodia have generated the vast majority of their premiums from their foreign corporate sector clients, who have all taken out property, motor, fire and medical insurance policies for their largely expatriate workforce. Individual insurance sales from Cambodian nationals have, so far, remained a very small proportion of business. It is estimated that only between 1 and 2 percent of Cambodia's 14.4 million population can afford to buy any insurance at present. As per capita income levels rise, however, insurers hope to see greater volumes of insurance policy sales from clients across the country.
There is evidence that Cambodia's native population have all become more aware of the benefits of insurance and could be willing to pay for cost-effective protection and savings solutions, like micro-insurance
, if available. Figures released in January by the General Insurance Association of Cambodia (GIAC) revealed how general insurance sales have grown by over 17 percent annually over the past five years, from US$10.8 million in 2005 to US$24.8 million in 2010, and that this has outpaced the country's overall GDP growth rate in that time. Despite these promising results however, it must be said that the overall size of the Cambodian insurance market is yet to see a substantial improvement. Cambodia ranks below many of their neighboring ASEAN nations it terms of overall country-wide insurance penetration and density (with under 0.3 percent of the population and US$1.48 per premium). Many insurance industry analysts maintain however that these figures in fact demonstrate a pronounced potential for insurance sector growth in the near future.
The most important thing, according to companies like Manulife, will be Cambodia's ongoing commitment to aligning their economic growth with the continued overall development of the Greater Mekong region, which has given marked confidence to international investors and unlocked significant market potential for business going forward. Cambodia's real GDP growth is projected to be 6.5 percent by the end of 2011 and 7 percent through 2012, respectively. In line with the Southeast Asian country's sustained economic development, the government in turn expects gross premiums to surpass US$54.5 million by 2015 due to improved consumer confidence and greater overall awareness of insurance throughout the region. If the Cambodian government keeps the market open and established insurers, both foreign and domestic, can effectively leverage their expertise and capital to efficiently address the country's emerging savings, investment and protection needs, the local industry will have the chance to prosper.
Established in 1996, Phnom Penh-based Forte Insurance has gone on to dominate Cambodia's general insurance market, now accounting for almost half of all non-life insurance premiums in the country.
Manulife Financial is a leading Canadian-based financial services group and serves millions of customers across 22 different countries and territories worldwide. Operating as Manulife Financial in Canada and Asia, and through John Hancock in the United States, the group provide clients with a diverse range of financial protection products and wealth management services through its extensive network of employees, agents and distribution partners.