In another place, the question might seem absurd: If a set of solar panels is destroyed during installation by bullets falling from the sky, thanks to reveling soldiers who fired into the air, would insurance cover the damage? But in Cambodia, Rath Sa Rath’s query is legitimate.
His question was weighed carefully and answered at a recent construction insurance seminar where experts discussed the new law drafted by the Ministry of Finance that aims at strengthening—or at least defining— laws governing the insurance industry.
Like many sectors in Cambodia, insurance is in its infancy and still needs development. Supporters say the new law will bolster investor confidence, while critics say the language is simple and the provisions are difficult to enforce.
All agree, however, that simply having a law is a positive step as Cambodia looks to develop a financial sector. The draft was approved by the Council of Ministers in July.
The law was drafted by officials from the Finance Ministry’s insurance arm, Caminco, with technical assistance from the French government and the international American Insurance Group, which sent a legal representative from its Hong Kong office.
“The rest of the thing we do by ourselves,” said Rath Sa Rath, a Caminco official. The law was modeled after several “Asian models,” including Singapore, Rath Sa Rath said. Figures, for example, are given in Singapore dollars.
The new law will be important for creating investor confidence as Cambodia works toward
building a “well-structured finance industry,” Rath Sa Rath said.
While Cambodia has a way to go before such an industry exists, investor confidence may be on the rise.
“We’re at a starting point,” said insurance expert David Brewster, who conducted the seminar and who has worked in the insurance business from Malaysia to Mombasa. And with or without strong laws, “confidence is important.”
Important, because a strong insurance sector leads to a more confident banking atmosphere, which can lead to more investment, industry experts and government officials said.
“Insurance can provide that confidence,” Brewster said.
When it comes to making loans, banks want to know they have strong collatoral from the lender, explained Carlo Cheo, managing director of Forte Insurance, which hosted the construction insurance seminar last week.
For example, if a bank makes a personal loan to a man, using his home as collateral, and the man does not have proper insurance, the bank is out of it’s collateral if the house burns down and the loan could collapse. It’s a simple example of how the insurance sector is needed by the banks.
Greater security brings more investment, and more investment creates jobs and forms a wider consumer base, including insurance clients.
“Each industry enforces the other,” said Kevin Lam of Standard Charter Bank. “It’s a running circle,” he said. “Building confidence has an impact.”
It remains to be seen if the new law will bring about that confidence. The law still has to be implemented through the drafting of subdecrees by the Finance Ministry.
The law itself contains standard articles defining insurance, insurers and the like. It has provisions for property, life and personal accident and compulsory insurance. The most important aspects, according to Rath Sa Rath, are in the compulsory laws and the laws governing the private sector.
According to an unofficial translation of the law, owners and operators of “commercial motor vehicles for fare” will be required to buy insurance to protect third parties, including those traveling inside the vehicle, or those who are injured in an accident if it is the commercial operator’s fault.
The law also makes liability insurance a must for construction contractors, though a subdecree must be issued to determine which types of projects must be insured.
Transporters, too, will be required to buy liability insurance for their passengers, including boats. That would apply to an incident earlier this year when a high-speed boat traveling from Siem Reap to Phnom Penh sank and a Taiwanese tourist drowned. Railroad carriers, too, will be required to have liability insurance.
Finally, the law contains requirements for private, joint and state-owned companies, requiring them to register with the Finance Ministry. It requires companies to be licensed and to deposit 10 percent of registered capital in the national treasury. A company must also have a registered capital of about $2.84 million for life insurance and $2.84 million for general insurance.
In addition, the law provides for a restructuring of a state-owned monitoring department.
Economic observer Paul Freer, of International Management & Investment Consultants Ltd, called the law “a step in the right direction,” but pointed out certain weaknesses, such as its simplicity and the problem of enforcing compulsory laws.
Another important aspect of the new law, he said, is the provision to create a Finance Ministry monitoring body. The insurance sector now “needs to be tightly regulated,” he said. The law provides an outline for that regulation.
So despite its weakness, Freer said, the law “won’t affect negatively” investor confidence.
Neither might falling bullets. It turns out, Brewster explained to Rath Sa Rath, that those shot-up solar panels would be covered, provided the owner carried “construction all-risks insurance.”