Photo by: Heng Chivoan

Women sift through rice in Battambang. Micro-insurance could be sold to low-income workers.

REGULATIONS to cover large micro-insurance initiatives in Cambodia have been drafted by the Ministry of Economy and Finance, providing a potential boost for the nascent insurance industry.

Micro-insurance – the provision of low-cost insurance to large low-income populations – has gained popularity in countries such as India and the Philippines but has so far been limited in Cambodia to pilot projects carried out by non-profit organisations.

But that is set to change, according to industry insiders preparing to target untapped sources of potential revenue in Cambodia’s countryside.

Secretary of State for the Finance Ministry, Hang Chuon Naron, confirmed yesterday the ministry is set to submit a sub-decree regulating the sector to the Council of Ministers “soon” with approval slated “by the end of this year”.

“Micro-insurance is needed by those with low income, who need protection from risks that threaten their everyday living. They can not access to general insurance, so the sub-decree is to enable low income people to get this service. The sub-decree would control it,” he said.

Hang Chuon Naron believes developing micro-insurance would open a market that is currently dominated by insurance sold to companies, not individuals.

Major insurance players are already preparing strategies for Cambodia’s large rural population. Some have partnered with microfinance organisations, which have established rural networks and access to numerous potential clients.

The Kingdom’s largest MFI, Prasac signed a memorandum of understanding earlier this year with Forte Insurance to provide micro-insurance.

Based on the MoU, Prasac would act as the sales agent for Forte – offering credit life, health and accident micro-insurance to its 100,000 rural clients. Credit life insures MFI loans in case of a borrower’s death.

Sim Senacheert, general manager of Prasac, said that Prasac would earn 8 percent commission for every US$100 premium.

“The rural client would pay a premium of $6 per year and in case of hospitalisation, the insurer would pay back $5 a day to the client,” he said.

He said that although insurers would profit because they would not need to spend heavily on setting up operations, as staffing networks were run by MFIs, the financial benefits could be modest given the low premiums concerned.

“From my point of view, micro-insurance does not benefit MFIs much, but it is helpful to the poor who will be able to afford medical costs,” he said.

The issue of profit and sustainability is being considered by all those in the sector. Suppliers acknowledge that there are risks involved.

Youk Chamroeunrith, general manager of Forte Insurance, said that micro-insurance schemes had failed in some countries, as operational costs outweighed premium revenues. That risk, he said, was the biggest obstacle to success.

But he said that the scheme was being launched to aid poor people’s welfare rather than out of financial interest.

Finance Ministry insurance division head, In Meatra, also highlighted potential challenges – including a lack of awareness about insurance, a shortage of expertise and the small size of the insurance market – at a forum held this week.

At the Asian Micro-insurance Conference, held in Ho Chi Minh City in Vietnam in July, organisers stated that micro-insurers needed “to show that despite the need to reach out to the masses ... the project is commercially and operationally viable”.

As some domestic operators prepare to jump in, others are considering their options.

David Carter, chief executive officer at Infinity Insurance, said that the firm saw the long-term opportunity in the market, but needed to approach it carefully.