In developed economies, insurance can play key role in mobilising savings and allocating them into productive investments. Cambodia’s market is growing fast, but has a long way to go
Photo by: NATHAN GREEN
Infinity Insurance CEO David W Carter says the product offering is still limited in Cambodia.
Growth in Cambodia's insurance industry is outpacing GDP, but the small size of the market means the number of entrants is few - and the product offerings limited.
According to Ministry of Economy and Finance figures obtained by the Post this month, premium insurance revenues grew 18 percent last year against an estimated 6.5 percent Gross Domestic Product growth.
However, the market was worth just US$20.5 million, up from $17.5 million in 2007.
"That is small beer," said David W Carter, CEO of Infinity Insurance, a member of the Royal Group, which began operations in Cambodia in 2007. "It's profitable, but the lack of scale is stopping international operations from setting up here," he said.
Cambodia has just five insurance companies: Forte Insurance, Caminco, Asia Insurance, Campubank Lonpac and Infinity Insurance, and one locally registered reinsurer, Cambodia Reinsurance Co, 80 percent owned by the state.
Two new companies are expected to enter the market this year, one local and the other, Kurnia Asia Pte Ltd, from Malaysia. The latter is setting up as part of a joint venture with Canadia Investment Holding Ltd, owner of Canadia Bank. State-owned Caminco could also soon have a foreign owner if the government goes through with plans to sell a 75-percent stake, which would establish a joint venture between a Thai insurer and a local investor.
It's profitable, but the lack of scale is stopping international operations from setting up here.
The product offering in the domestic insurance sector is also limited with only general insurance currently offered.
According to figures from the Asia Development Bank, commercial fire and miscellaneous policies make up 63 percent of the market and motor vehicle insurance 19 percent. Other major products sold include hospital and surgical, personal and accident, marine cargo and travellers insurance. Commercial vehicle, construction site and passenger vehicle liabilities are required by law.
Currently, no insurers offer life insurance in Cambodia - licences have only been available from 2008 though none have yet been granted, while there is not even a legislative framework in place for investment products.
"It's the natural evolution of insurance in developing countries," Carter said. "General insurance comes first and that is extended to life premiums and then investment products."
The World Bank has identified life insurance as a sector whose development could help the country mobilise public savings and allocate them to productive investment. However, in its January 14 report "Sustaining Rapid Growth in a Challenging Environment", it warned a much stronger regulatory framework was needed to audit and regulate investments.
But Carter said even with a robust regulatory framework it could be a long time before insurers are willing to enter the life insurance market in Cambodia given its small size and, more importantly, the absence of mortality tables here.
"I don't know if they exist here," Carter said. "They could use tables from a neighbouring country as a proxy, but I am not sure if any would be relevant given the recent traumatic history of Cambodia."
Carter said a lack of local knowledge was another key obstacle to setting up in Cambodia. However, he added that a legal framework to facilitate regional integration could make the market attractive to insurers from neighbouring countries by helping provide scale for in-country operations. "If the laws allowed it, you'd see regional integration as well," he said.
Youk Chamroeunrith, director of Forte Insurance, Cambodia's largest insurer with 50.31 percent market share in 2007, told the Post this month that the industry needs to market itself better to develop a customer base.
Only about one to two percent of Cambodia's 14 million people are thought to have the required disposable income to be able to afford insurance.
"Generally, in less developed countries the proportion of people buying insurance is very low compared to the developed world," he said. "Cambodians are not interested in buying insurance, and they have less knowledge about the importance of buying insurance."
Carter said there were also issues with trust, particularly when it came to life or investment products.
"People generally will not pay premiums to a company because they find it hard to believe a piece of paper can lead to a claim being paid out," he said. "General insurance is a short-term commitment and can easily be cancelled, but life insurance by its nature is for life.
"It's all about trust. But you have a young population that have shown they are early adopters of new products like mobile phones and fashions - there are a lot of new thing they are willing to accept and insurance is one of those things."
Carter predicted the market would slow next year, but still grow 10 percent.