Insurance Industry Still in Its Infancy in Cambodia

After a period of low activity midway through last year, Cambodia’s insurance firms say they are starting to see revenues increase. But an­alysts say the insurance sector in Cambodia is still extremely underdeveloped and needs to promote higher levels of public confidence and affordability before it will grow beyond its current state.

Cambodia currently has six operating insurers—Asia Insurance, Cambodia Reinsurance, Caminco Insurance, Campubank Insurance, Forte Insurance and Infinity Insur­ance—generating annual collective revenues of about $20 million.

“That, I can tell you, in the global insurance market, is a pinprick,” said David Carter, CEO for Infinity Insurance, a subsidiary of Cambo­dian conglomerate The Royal Group.

Competition in the market is also “really strong,” said Mr Carter, noting that three of the six companies entered the domestic market within the past three years, and all are fighting for a piece of a rather small pie.

The main insurance products are commercial fire and motor vehicle insurance, though the policies sold to the nascent oil and gas industry have emerged as one of the most active areas of growth, alongside large construction projects.

Although companies can theoretically apply to the Ministry of Finance to acquire a license for life insurance no companies have yet decided that it is a product they want to offer Cambodian customers. Pensions are another product that is not offered domestically.

Those in the industry claim that there is a lack of experience and know-how in the domestic market to venture into the domain of life insurance and that there are difficulties in convincing people to pay for coverage for something abstract, or non-material such as life insurance.

Charles Cheo, deputy-managing director for Forte Insurance, said that life insurance is mainly driven by the middle income families who still need a lot of convincing that life insurance is actually worth it.

“It takes some time for the consumer market to have a belief in [life] insurance. Life takes a lot of convincing,” he said.

He added that disposable income among Cambodians as well as investment opportunities for revenue generated by premiums is also inhibiting the sector’s growth rate.

“I want to see someone else do [life insurance] first,” Infinity’s Mr Carter said. “If I was to embark on life insurance I could put the financial profitability of the company back many years.”

One insurance broker who requested anonymity said that reinsurance companies abroad are simply not interested in Cambodia when it comes to life insurance due to excessive levels of risk in the country. Road accidents and poor health services in Cambodia, to name but a few, all act as severe deterrents. Customers that would be able to gain life insurance here are mainly expatriates leading low risk livelihoods, the broker said.

In his 2009 book, “Cambodian Economy: Charting the Course of a Brighter Future,” Hang Chuon Naron, secretary-general of the Finance Ministry, wrote that development priorities in the insurance sector included offering life insurance and private pension schemes.

He also said that minimum prices for the most common insurance products should be set and a specialized training institute for office managers and supervisors should be developed.

Insurance is “a new concept for most Cambodians,” said Chan Sophal, president of the Cambodian Economic Association. “It takes time for people to realize they want to insure their assets.”

Mr Sophal added that the notion of risk among Cambodians is still not as developed as in other countries.

“Many Cambodians are still poor and don’t have high income and they are still used to bearing high risks themselves,” he said, adding that there is also a major issue of affordability for most Cambodians.

In the same way it has taken time for Cambodians to vest their confidence in the banking sector, the insurance industry is now embarking on a similar mission, analysts say.

“Confidence is what the client needs,” said Sin Bopha, marketing manager for the state-run insurance company Caminco.

Mr Bopha said insurance companies need to expand their range of products and lower prices before domestic customers would be more in favor or taking out insurance plans.

Still, Chhay Rattanak, chairman of the General Insurance Association of Cambodia, said premiums in the market rose by 19 percent in the first two months of the year to $3.87 million. Auto insurance increased by 11 percent, personal accident insurance increased by 16 percent and fire insurance increased by 10 percent. Though maritime insurance decreased by 22 percent and worker compensation decreased by 48 percent, a sign that both exports and unemployment levels are still an issue affecting the economy.

“Last year we had too many cancelled policies and we are just starting to see them being renewed,” Mr Rattanak said.

Mr Rattanak added that the insurance sector was still undermined by many of the larger contracts, particularly within the construction sector, using oversees policies.

Total premiums in 2009 were $20.07 million, a 2.86 percent drop from 2008.

In the garment sector, where premiums tend to be higher, insurance companies must accept a large amount of risk.

Last year, Forte paid out more than $9 million after a fire ripped through four of the buildings in the Suntex factory complex in Phnom Penh’s Dangkao district.

“All the factories want to be insured. It’s a question of whether insurance companies want to take the risk,” said Ken Loo, secretary-general of the Garment Manufacturers Association in Cambodia.

“New entrants to the market may decide that they may not want to cover such risk,” he said.

At Infinity, revenues hit $4.1 million in 2009, a 20 percent increase compared to the previous year, according to Mr Carter.

He said that Infinity is on target to reach $5 million in revenues by the end of this year with first quarter income for 2009 up 20 percent compared to the same quarter last year.

“At the start of last year it seemed as though it would be pretty strong, but then it really dropped away sort of midway and then it picked up toward the end of the year,” Mr Carter said. “It was a pretty bumpy year.”

Since Infinity came to Cambodia it has seen rapid growth despite concerns in the market that most Cambodians do not latch on to the opportunity to insure their physical assets.

For the moment, Mr Carter said, Infinity are not interested in moving into high-risk sectors such as garment factories.

“If we can’t have a really big influence on that part of the industry we’re not going to dabble in it,” he said. “If you write a small number of those risks then you get a loss…that’s the danger of it.”

Infinity has, therefore, been concentrating on hospitality sectors as well as embassies, NGOs, telecommunication firms and some manufacturing firms.

Huoy Sok, accounting manager for Caminco, said revenues at the company increased by 40 percent in the first quarter of 2010 compared to the same period last year, though he declined to reveal how much that amounted to in revenues, citing reasons of confidentiality.

For Youk Chamroeunrith, general manager for Forte Insurance, most of the future profits in the industry will come from foreign clients.

“We mostly rely on foreign companies,” he said.

Mr Chamroeunrith said that revenues at the company declined by 10 percent last year as foreign direct investment levels fell and existing investments froze, particularly those in the construction sector.

Revenues in the first quarter of this year were up 20 percent compared to the same quarter last year, though he also declined to share how much that amounted to in cash flow.

Campubank Insurance could not be contacted for comment and Asia Insurance declined to comment for this article, referring questions to be answered instead by the General Insurance Association of Cambodia.


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