Seven insurance firms Thursday agreed on a floor rate for fire premiums to avoid a race to the bottom in an industry already operating on tight profit margins, the Insurance Association of Cambodia (IAC) said Thursday.
The pact, made by members of the IAC, aims to protect the industry’s biggest revenue generator, fire insurance, which accounted for a third of total revenue in the sector for the first three months of this year.
From January to February, fire premiums rose by 24.7 percent to 4.3 million compared to the same period last year.
IAC chairman Chhay Ratanak said companies failed to adhere to a previous minimum premium rate, but was confident that Thursday’s agreement would see companies working in accordance with more structured regulations that would ensure a healthy industry.
The new floor rate will be on property valued up to $10 million and will be introduced on July 1. The rate will be determined based on the structural design of the insured building and other factors.
From 2003 to 2013, market competition saw premiums lowered and profit margins narrowed. Total revenue collected through fire premiums in the ten-year period reached $65 million, with $48 million, or 73.8 percent, paid out in claims.
Bou Chan Phirou, director of the Ministry of Finance’s insurance department, said the industry needs to avoid the fate of the telecoms sector, which saw companies implement aggressive pricing strategies that eventually led the government to pass largely ineffective regulations imposing minimum call prices.
“We don’t want to lose out like the telecom sector did, or the industry will be killed,” Mr. Chan Phirou said.