Commercial building sites like this structure which collapsed in Phnom Penh November 27, require compulsory third party cover.

The state-owned Cambodian National Insurance Company (Caminco), in which the government

is keen to sell a minority stake, is finding it hard to realize its dream of turning

into a professionally run firm that can compete with the private sector.

Although authorities said January 3 that some foreign companies were interested in

teaming up with Caminco, negotiations were reportedly stuck over the government's

insistence on retaining a 51 percent share of the proposed semi-private venture,

and thereby exercising control over its functioning.

Un Taing Im, first deputy director of the insurance industry section of the Ministry

of Economy and Finance (MEF), told the Post that private firms had refused to accept

less than 51 percent, "so that they could have complete control over its management."

"But the proposals are still under consideration and we will decide on them

once we finalize whether we want to deal in only non-life insurance or both life

and non-life insurance," he said.

The 2002 Budget pledged $13 million to overhaul the ailing company and prepare it

for competition from the private sector which would respond to the government's new

open-door policy for the country's insurance sector.

Though the proposal for part disinvestment of Caminco has yet to receive final approval,

industry sources said the company was sending out feelers and negotiating with private

firms in anticipation. That has led to criticism from some Funcinpec lawmakers who

said Cambodia's insurance sector was neither big enough nor mature enough to justify

risking government funds.

According to Im's own admission, the size of the insurance market in Cambodia is

worth less than $30 million. Local policies represent around $6 million with the

balance going to offshore companies through local agents.

Im said that under the new law the four private insurance companies - Forte, Asia,

Pana and Indochine - were not yet full insurance companies because they sell policies

either on behalf of foreign parents or other companies. However, beginning April

1 this year they will have to comply strictly with the new rules as laid down in

the sub-decree dated October 21, 2001.

Under these regulations, all insurance companies - both existing and new entrants

- must comply with specific conditions including a capital investment of at least

$7 million for each of the life and non-life components of their insurance venture.

Ten percent must be deposited in the national treasury and 50 percent pledged as

a solvency deposit, Im said.

This replaces earlier rules that required a capital base of only $2 million. The

licenses of the existing players expired December 31 and they have been given three

months to come up with the capital increase.

"Additionally, the government is inviting more private players to set up shop

in Cambodia to make the insurance sector here more competitive," said one industry

source. "A Thai public sector company, which is a leader in automobile insurance,

has already approached the authorities with a proposal and many more are likely to

join in. There is simply not enough space for so many players."

Youk Chamroeun Rith, director of operations at Forte Insurance, said his company

planned to seek a license for non-life insurance only, although he and other players

felt the capital investment requirement was too high given the size of the market.

He said the life insurance market was still in its infancy and had no scope for immediate

growth.

"Even if the $6 million figure on local insurance is accepted, there are four

players vying for that small piece of the market. Having $7 million in registered

capital to compete for such a small market doesn't make sense," he said. "It

is not yet a consumer market, since 95 percent of our clients continue to be NGOs,

and fire insurance makes up our largest portfolio."

The MEF's Im admitted that insurance was a relatively new concept in Cambodia and

agreed it was difficult to convince people it was relevant, even for those high risk

areas such as fire and accidents, let alone life insurance. Those who understood

and could afford a policy, he said, opted for the foreign players. A large chunk

of the market was represented by expatriates and business houses.

"But [the market] is bound to grow," said Im. "To begin with the sub-decree

has made it mandatory for all commercial vehicles and construction sites to obtain

third party insurance. In addition, all those business houses holding foreign insurance

policies will have to change their insurers and buy policies from companies operating

in Cambodia.

"In addition, we are planning campaigns to create awareness about the need for

insurance and instill customer confidence in the domestic insurance market. I agree,

it can't be achieved overnight, but we are making a start," he said. Im noted

that the four existing players had the capacity to comply with the revised conditions

and would be given a fresh license if they came up with the requisite capital.

However, it is not just insurance companies which are feeling the pinch of the new

rules. Insurance agents and brokers, for instance, are now required to obtain a license,

available for a deposit of $10,000 and $50,000 respectively. Brokers said that was

unrealistic as their 10 percent commission meant they would have to sell $500,000

of policies just to cover the deposit.

"With overheads like staff salaries and maintaining office infrastructure, coupled

with the existing ban on advertising our services, it will become impossible for

us to survive," one long time broker rued, saying he was planning to wind up

his insurance brokering firm.

Until the new law was introduced, brokers operated under a system free of specific

regulations, other than a bar on advertising, which made it difficult to attract

customers.

"For a business like insurance that has to rely on large volumes of customers,

lack of advertising can be a major hindrance," the broker said.

Brokers questioned why they were required to make such hefty deposits, while their

richer agent counterparts needed to deposit only one-fifth that. They said they had

other costs too, among them professional indemnity insurance that protects the customers'

interests against dishonored claims that stem from the broker's oversight.

Since the new rules came into force, the department of financial industry at MEF

has given forms to only ten agents and ten brokers. None, it says, has come back

with completed papers. Industry sources said there were insufficient trained and

qualified brokers and agents in Cambodia who could comply with the new insurance

rules.

"Before opening up the market, the government needs to strengthen the legal

framework to instill public confidence by keeping a close eye on the claims as well,"

said Chamroeun Rith of Forte Insurance. "International brokers will come only

if they know that the market in Cambodia is both reliable and stable. And if one

insurance company defaults on claims, it can spoil the image of the entire sector."