An extract from The Insurance and Reinsurance Law Review, 8th Edition
The insurance market in Cambodia is entering its sixth stage of development, although it can still be considered relatively new.
The first stage began in 1992 with the introduction of the Law on Insurance, which can be viewed as the rebirth of the insurance industry after many years of war. Three companies obtained licences within the subsequent three years. However, most of the business consisted of acting as insurance brokers and no risks were retained in the country. The Law on Insurance was abrogated in 2000 and again in 2014. The new Law was promulgated on 4 August 2014. Any references to the Law on Insurance in this chapter refer to the 2014 version.
The second stage required the government to strengthen the industry by the design of two main tools: a new law in 2000 to increase the solvency and capital requirements, and the establishment of a state-owned reinsurance company. The latter also had the purpose of retaining part of the reinsurance premium in Cambodia and to offer a local reinsurance option to the Cambodian insurers. Following this new law, two general insurance companies obtained their licences in 2007 and in 2015.
In the third stage, banks' affiliated insurance companies entered the market from 2007 to 2009, as the fast-growing banking industry required insurance to cover the assets provided as collateral. This stage is currently reinvigorated thanks to three financial groups proposing bank, general insurance and life insurance services.
Until 2010, the market was limited to non-life insurance businesses (i.e., general insurance and reinsurance), but continued to maintain low retention rates.
The fourth stage occurred in 2011. General insurance companies could have satisfied themselves in playing a limited role, providing standardised and limited insurance policies to the urban middle class while still getting a profit at the level of their investments. However, the government considered it a priority to offer access to insurance to the rest of the population. Without waiting for a new law, and based on non-governmental organisations' experiences and comparative studies, it passed one temporary ministerial order to start micro-insurance in Cambodia. After the Ministry of Economy and Finance (MEF) granted the first micro-insurance licence, seven others followed in quick succession from 2014 to 2017, which were mainly in health and life, often in partnership with microfinance institutions. The first micro-life insurers played a very strong role in promoting insurance. A micro-insurance business is sustainable only by selling products to the mass market; micro-insurers have opted to use the three best methods available to promote their insurance policies to those in Cambodia who can afford to pay a small amount of premium: by using micro-finance institutions' (MFIs') networks, selling to companies and factories, and retailing through mobile technology.
The first method consists of using the very wide MFIs' networks to propose credit-life insurance by paving the way to the bancassurance activity. This approach was fruitful, but has been recently jeopardised by a series of new regulations mainly originated from the National Bank of Cambodia.
This strategy also generated something unexpected: it opened up a new business opportunity for the non-bank affiliated general insurance companies, which found risks that they were financially able to underwrite by themselves.
This unexpected competition in their own market (the indigent population) led micro-insurers to the second method, which was to start competing with general insurers in the general insurers' own market by selling group personal accident and group health insurance policies to companies and factories to cover their employees. The viability of this last segment is also currently endangered by the National Social Security Fund (NSSF). Until the end of 2015, the NSSF only covered work-related accidents, but in January 2016, the government adopted a sub-decree to establish a healthcare scheme to cover those persons defined by the provisions of the Labour Law, and to be executed and managed by the NSSF. Since the end of 2017, it has been compulsory for every employer to contribute to the NSSF for both accident and health schemes.
The third method used by micro-insurers to target the poor is to work with telecommunication operators to sell insurance products using mobile technology. Even with the worldwide leader in insurance products operating here, using mobile technology for insurance distribution (i.e., Bima), micro-insurers are facing competition from other general and, recently, life insurance companies in this area.
The fifth stage began in 2012 and led to the introduction of the life insurance industry, which was a significant move in the market and recognised by the government as necessary. In order to introduce life insurance, the government relied on two main pillars: the new regulation (passed in 2014), and the establishment of a state-owned life insurance company.
While non-life insurance companies, like other industries in Cambodia, remain mainly regional in their shareholding (including companies from Singapore, Indonesia, Thailand, Malaysia, Hong Kong and Vietnam), leading worldwide life insurance companies entered into the Cambodian market soon after life insurance was introduced in 2012 and the flow of companies has been steady since then. The MEF granted licences to Manulife, Prudential, AIA and Dai-Ichi Life, while four Asean life insurers obtained their own licences. A Malaysian insurance player, Etiqa Group, entered the Cambodian life and general insurance market earlier in 2019.
Life insurers have undoubtedly become the main players in the insurance industry; by investing a lot, through the mounting of large advertising campaigns, they have generated new interest for insurance in the general population. Since 2013, life insurers have experienced exponential growth, with endowment accounting for 86.8 per cent of the market share in 2019, while term life remains unchanged at 4.1 per cent.
The sixth stage of development started in 2017 and is concomitant with the recent massive Chinese investments in the Kingdom and the will of several local tycoons involved in the financial industry to diversify their investment to insurance concerning both general and life activities.
Insurance intermediation has grown very slowly. Until 2007, only one insurance agent and one insurance broker were duly registered. But recently, Cambodia has been facing an unstoppable flow of new brokers. Although bancassurance suffers from an inconsistency between banking, and insurance regulations and practices, many banks, MFIs, financial leasing companies, as well as telecommunication operators have been granted with insurance agent licences. However, the number of insurance agents operating as a main activity remains very low, and even decreased due to aversive legal requirements.
With the exception of the General Insurance Association of Cambodia, which was established in 2005 and became the Insurance Association of Cambodia in 2013 (to include life and micro insurers), brokers are also establishing an association to protect the interests of their profession.
Despite the fact that the insurance market is still nascent, Cambodia has many assets, even if pitfalls exist. The following are key assets of the Cambodian insurance market:
- Cambodia has an insurance penetration rate of only 10 per cent of the population, and its middle class is the fastest growing in the Association of Southeast Asian Nations (ASEAN);
- a very fast premium growth rate of 20 per cent per year during the past 15 years, which nevertheless should be minimised because of the very low amount of premium (US$143 million in 2017 compared to US$113.6 million in 2016) largely boosted by the very recent life insurance segment; as of 2019, there was 25 per cent growth of insurance premium (US$245.8 million in 2019 compared to that of US$196.4 million in 2018 yet life insurance segment slowed down within the first three quarters in 2019, which increased only 7 per cent compared to the 35 per cent increase in 2018;
- very few businesses subscribe to insurance policies to cover their risks, and when it happens, it is generally through a fire insurance policy that the banks require for granting loans;
- while some foreign businesses are covered in Cambodia through their worldwide policies, any risk in Cambodia must be underwritten by a duly authorised insurance company. Sanctions have been drastically increased with the Law on Insurance; and
- more generally, the existing legal framework offers notable incentives that foreign investors might not be entitled to in neighbouring countries. This includes no restriction on foreign ownership, no local joint venture requirement, free repatriation of benefits, no exchange control and minimum currency risk owing to a highly dollarised economy.
Besides these opportunities and the government's best efforts to promote the industry, this chapter will examine some of the main concerns that actors are facing, mainly owing to the very recent, and sometimes not fully detailed, insurance regulation.
Year in review
Because the MEF decided to freeze life insurance licences, there were very few licences granted in 2019, and the same goes for microinsurance licences. However, from the third quarter of 2018, the MEF decided to reopen the licence; therefore, we may expect a lot of licences granted in 2020.
In 2019, the total gross premium of insurance sector in Cambodia rose from US$196.4 million (2018) to US$245.8 million (2019), a 25 per cent increase with the help of the general insurance sector of 14.2 per cent and life insurance sector of 42.4 per cent, according to the Insurance Association of Cambodia.
Outlook and conclusions
Although there are still a lot of opportunities in the general insurance market, the life insurance market is becoming overloaded and highly competitive. The micro-insurance industry has stalled in anticipation of a sub-decree on micro-insurance.
With regard to human resources and the MEF's availability, dealing with the increase in players is the main challenge, which has already resulted in the MEF being very delayed in granting authorisations. Since the decision to increase the average salary in the public sector, the administration is very restricted when recruiting civil servants. In addition, owing to a lack of skilled human resources, entities in the public and private sectors tend to poach staff from each other, causing salaries to rise to an unaffordable level for the ministries.
With regard to claims, fraud has become a major issue, especially with a small number of loss adjusters. In addition, the tax regime applicable to life insurance activities and the double taxation of brokers and agents may cause frustration.
In terms of investing capital and premium, the options are incredibly limited. An insurance company must use at least 75 per cent of its reserve funds created from insurance premiums for reinvestment in Cambodia. The new draft regulation pertaining to the use of the minimum capital and solvency margin drastically limit the number of possibilities. It is even worse in practice, as the stock exchange is still in its infancy (although first private bounds have been recently issued and despite new tax incentives); investment in real estate is generally forbidden to foreign entities; investment in government bonds is not currently available; and investment in the private sector is not sufficiently reliable. Therefore, insurance companies try to repatriate their premiums through a reinsurance scheme, or make a deposit in a bank that provides a relatively good interest rate.
Finally, in terms of distribution, we do not see improvement regarding the conditions to become an independent insurance agent, and although we expect improvements soon, insurers are still waiting for a more clement bancassurance framework.