Cambodia’s booming economy coupled with a competitive workforce and a rapidly growing middle class, appear to be laying the foundations for a sustainable life insurance industry in the country.
This is supported by senior industry figures who believe that Cambodia’s life insurance is well positioned to grow.
Cambodia’s macro-economic growth is the first pillar likely to drive the country’s life insurance sector forward. This is because Cambodia’s economy grew at almost 10 % per year between 1998 and 2008, according to the World Bank.
Although this growth was interrupted by the global economic downturn in 2008-09, Cambodia’s growth momentum is expected to further increase to 6.5% annually in 2012 and 2013, driven by strong exports, private investment, and a solid macroeconomic position.
By comparison, Thailand’s Fiscal Policy Office expects economic growth of between 4.5% and 5.5% in Thailand in 2012.
Building on potential
David Wong, senior vice-president and chairman of Manulife (Cambodia), says: “Cambodia has recently begun to capitalise on its economic potential. Since adopting free-market economic policies in the 1990’s and increasing its integration within the international community, Cambodia’s economy has flourished.”
Wong explains that Cambodia’s economy is also benefiting from a young and competitive workforce and a rapidly growing middle-class.
“In view of this, and of the country’s fast developing yet untapped demand for life insurance, many insurers, Manulife included, believe the country is well-positioned for the development of the life insurance industry,” says Wong.
Pankaj Banarjee, general manager of Pru-dential’s representative office in Cambodia, supports this view. Banarjee says the Cambodian life insurance market has “very positive” long-term growth potential.
Banarjee explains this is because the demand for life insurance and other financial products is expected to rise strongly on the back of robust economic growth in addition to growing urban population with rising per capita GDP across the whole populace.
“We believe these [factors] represent a significant untapped market opportunity for Prudential and that we are well placed to capture the opportunities there,” says Banarjee.
Based on research undertaken by Life Insurance International, There are currently only two life insurers effectively operating in Cambodia, Cambodia Life Insurance Company, a state-owned joint venture, started its operation in May 2012 and Manulife (Cambodia) started its operation in June 2012.
Prudential Corporation Asia announced on 2 July 2012 that it has received in-princi-ple approval from the Cambodian Ministry of economy and finance to establish a wholly foreign-owned life insurance operation in the country. Cambodia extends Prudential’s life insurance footprint in Asia to 13 markets.
Wong says Cambodia is very open to foreign investment, allowing 100% foreign ownership of life insurance companies. There are also no foreign currency controls in place.
Banarjee says: “In general, Cambodia has actively encouraged foreign investment, which has led to economic growth and urban development over the years. The development of the financial services sector is one of the key priorities of the government.”
From a regulatory perspective, insurers also have room for manoeuvre. Wong notes that the Cambodian regulator is working on a new insurance law and issuing new regulations related to life insurance and micro-insurance which provide regulatory stability.
However, he says it is “the openness and progressiveness” of the Cambodian regulator that have given the multinational life insurers the confidence to invest in the country.
Benilda Fernando, a director at PriceWaterhouseCoopers in Cambodia, describes regulators as “reasonable” saying they will “take into consideration the knowledge brought in by foreign investors”.
Wong sees the “lack of local talent” as the initial largest challenge facing life insurers in Cambodia with a need for trained actuaries, underwriters, and IT professionals, among others.
“Life insurance is a new sector in these emerging markets and we need a lot of expertise in various disciplines such as actuarial, underwriting, claims and life insurance IT systems,” explains Wong.
Another challenge, according to Fernando, is the availability of reliable statistics in terms of the valuation of insurance.
Finally, to really grow sales, the populace at large will have to be ‘persuaded’ of the benefits of life insurance.
Banerjee says that Prudential hopes to aid the spread of knowledge and understanding of insurance protection and long-term financial planning, thereby supporting the development of the Cambodian life market.
This will be essential in driving greater market penetration, and helping to provide Cambodians with better levels of protection.
Initially, Wong says Manulife (Cambodia) is selling a pure life insurance protection product – a ten-year term product.
“As we get to know the market further and as the people get to know more about life insurance, we intend to introduce other key insurance products such as insurance with a savings element, to cater for saving for children’s education, retirement planning or other purposes.
He adds that Manulife (Cambodia) is also considering designing a medical From a regulatory perspective, insurers product over “the longer term”.