Life insurance will help to further develop Cambodia’s insurance and financial markets, though it may take some time to get there. Here’s a look at the present state of life insurance in the Kingdom and the changes needed before the industry fully matures.
In August 2011, the Ministry of Economy and Finance announced a joint venture that would establish Cambodia’s first life insurance company. The government will retain a 51 per cent stake in the joint venture and four private companies from Thailand, Hong Kong and Indonesia will hold 49 per cent.
Presently, the market consists of six general insurance companies and one reinsurance company, the latter of which often referred to as an insurance company for insurers. In 2010, total insurance
premiums were approximately US$25 million, of which fire insurance represented 25 per cent, motor 20 per cent, engineering 15 per cent and health 13 per cent.
The corporate sector accounts for the vast majority of the premium market, while the individual market represents a small proportion. In the last six years, the average annual premium growth has been about 17 per cent, although it is believed that less than 2 per cent of the population can actually afford insurance. In 2010, insurance premiums represented only 0.22 per cent of GDP, compared with 2.06 per cent in Malaysia, 1.37 per cent in Singapore and 1.17 per cent in Thailand.
Given the small size of the market, the low penetration rate, the lack of participation by individual consumers in the market, will life insurance, which is generally a family product, flourish here?
Life insurance itself is a contract or policy, where in exchange for a premium, an insurance company will pay a monetary benefit to a designated beneficiary upon the death of the insured person.
Life insurance isn’t for the benefit of the person insured. It is meant to provide a measure of financial security for those beneficiaries that depend upon the insured. As a general rule the amount of life insurance purchased should cover the insured’s final expenses such as funeral expenses, medical bills, remaining credit card balances, car loans and any mortgage outstanding, as well as replacement income for the dependents.
The insured amount also should provide coverage for a similar lifestyle for the dependents: for a spouse until retirement or death, in the case of the absence of retirement funds or government social security; and for children, support through university, including educational expenses. A rate of inflation should be considered in the calculation, as the price of goods and services will increase annually and educational expenses historically rise at a higher rate.
Life insurance has had to overcome cultural issues in Asia and has done so successfully in most markets. The tradition of families caring for a remaining parent is a staple Asian value, but is being challenged with the increase of households with both husband and wife working and families relocating to urban areas and cities. It was also considered bad luck in some circles to purchase life insurance on a loved one, though it is now considered bad luck not too.
Insurance is gaining acceptance in Cambodia, and it is especially evident in the growth in fire, motor and health insurance. People are more concerned about their property, and clearly their lives. With the continued impressive growth in gross domestic product, improved educational levels in the population, better employment opportunities and increase in disposable income, insurance will less likely be considered a luxury item and more a necessity.
As the stock exchanges gains traction, the insurance industry can progress to the next generation of life products that incorporate savings. This will provide both a safety net with life coverage and a vehicle for savings as an alternative to real estate and bank deposits.
Anthony Galliano is chief executive of Cambodian Investment Management.