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Myanmar: A Market Of Possibility

10 October 2017

"This will happen within this fiscal year [Before 31 March 2018.]"

Thant Zin, Director General of the Financial Regulatory Department


The economic potential of Myanmar is showing increasingly positive promise. In September 2016, a Financial Regulatory Department official announced plans to further liberalise the Myanmar insurance market. These plans will entail allowing foreign insurers into the market as well as lifting restrictions on products and pricing for the 12 currently authorised local private insurers. The eagerly awaited new insurance legislation will attempt, according to local observers, to bring Myanmar as far into line with the rest of its Association of Southeast Asian Nations (ASEAN) neighbours as possible.

Myanmar is proving attractive to foreign investors for several reasons. Apart from its large untapped reserves of natural gas, oil, timber and precious metals, it also possesses a young and relatively inexpensive labour force and an important geographic position on the periphery of Asia's fastest developing markets.

Myanmar is hypothetically a free-rated market and there are no statutory tariffs, but all rating systems must be submitted to the Financial Regulatory Board (FRD) of the Ministry of Finance, advised by the World Bank. Compulsory insurance classes include amongst others: motor third party liability, general third party liability and professional indemnity for insurance brokers, although the latter occupation does not yet exist in practice.

The Myanmar Insurance Business Law 1996 technically permits foreign insurers to operate in Myanmar, although no foreign-owned companies have so far been established. Several foreign insurance companies have representative offices. Following liberalisation reforms, started in mid-2012, the economy has rapidly transformed to integrate into the world economy and attract foreign investment.

Until 2013, the state-owned Myanma Insurance had a monopoly. It does not appear to function as a properly segregated insurer, but rather as a special unit of the Ministry of Finance. In April 2015 Myanma Insurance announced that foreign insurance companies wishing to do business in the Special Economic Zones (SEZs) would be required to pay a licence fee of USD30,000 unless they have already paid a fee to establish a representative office.

The benefits of investing in Myanmar are encouraging. Companies will receive a five-year tax holiday, may lease land for an initial period of 50 years and profits may be repatriated at a floating exchange rate, instead of the old, highly over-valued rate set by the Central Bank of Myanmar.

Several foreign insurers and brokers have established local representative offices, which mostly involve looking after the local interests of their multinational clients. These 22 offices, including life insurers, have formed a loose association (unofficially as the Insurance Law  does not allow for such an organisation) to promote and raise awareness generally of insurance as a concept, as well as provide training to local practitioners.

In terms of a workforce, wages and salaries are agreed between employers and workers, who are expected to work the average 48-hour week. There is also a prospect of longevity in terms of the Myanmar market as the country has an abundance of hydropower. Hydroelectric power accounts for just over 50% of the countries.

One key issue in discussing the prospect of Myanmar, however, is an evaluation of military control. 110 of the 433 seats in government are reserved for the military. Constitutional changes require over 75% parliamentary support, giving the military influence over the future political structure of the country. Before 2011, Myanmar's military, known as Tatmadaw, tightly controlled political power. The 2015 election marked the end of this domination of Myanmar public life after Aung San Suu Kyi's National League for Democracy (NLD) clear majority win. In March 2016, the party elected Htin Kyaw as president. While constitutional provisions continued to bar Ms Suu Kyi from the role, it is an open secret that Mr Kyaw intends to act as a conduit for her.

Despite this, the military remains an extremely powerful and influential body and reserves the right to intervene if it considers the reform process to be moving too rapidly, or threatening its power base.

The problematic issue arises when considering that major industries have been managed by regime insiders and members of the military apparatus, even after apparent privatisations. Myanma Insurance still takes a 10% coinsurance share of all business as well as a foreign investment licence fee of USD30,000. As Myanma Insurance acts as a wing of the Ministry of Finance, could this money be funding the government, and potentially the military?

Considering the military's political power, alongside government spending often being tilted in their favour (rumoured to have been close to 25% of all expenditure in 2011), there may be cause for investigation. With no immediate plan on a reduction in military spending, could it be that the move to open the market is a ploy to fund a military regime? Judging by Myanmar's rating of 147th out of 175 in Transparency International's 2015 annual Corruption Perceptions Index, it's certainly a possibility.

The US has had sanctions in place against Myanmar since 1997. In July 2008, the US president signed into law the Tom Lantos Block Burma JADE (Junta's Anti-Democratic Efforts) Act 2008, which imposed new targeted sanctions on the Myanmar military regime. Since 2008, the Obama administration sought to improve relations as part of its so-called Asian "pivot" under which the US strengthened relations in the Pacific and south-east Asia to counter China's rise. European sanctions were lifted in 2013. China and India have expressed interest in deepening trade ties with Myanmar due to its natural resources. India, the world's largest democracy, has attempted to build better relations with Myanmar in part because of its regional competition with China.

Myanmar's developmental needs remain daunting, and while an expected flood of development aid and foreign investment will produce higher rates of real GDP growth, large-scale job creation and improvements in living standards will prove harder to achieve over the medium term.

In conclusion, Myanmar's insurance market is still relatively small and under-developed, and much of the population lives below the poverty line. The country is, however, rich in natural resources and has vast potential for economic growth. Development of the insurance industry is dependent on a stable political and economic environment, which in turn should promote further and ever-increasing foreign direct investment, the leaders of which are currently China, Japan and Singapore. The financial services sector is so far behind in development compared to its ASEAN neighbours that new promised insurance legislation will be unable to catch up in one fell swoop. It will be a process, but the prospect remains promising.

For further information please refer to the non-life insurance market report for Myanmar, or contact your Axco Representative.