YANGON -- Myanmar is opening up its Thilawa special economic zone near Yangon to international insurance companies -- part of a market liberalization effort expected to gain momentum this year.
The government does not allow foreign insurers to offer their services outside of Thilawa -- a Myanmar-Japanese joint venture and the country's only operational SEZ. Only three Japanese insurers have permission to operate inside the zone: Sompo Japan Nipponkoa, Tokio Marine & Nichido Fire Insurance, and Mitsui Sumitomo Insurance, which all receiving licenses in 2015.
Amid growing foreign interest in Myanmar's largely untapped market, however, the government recently notified all foreign insurers with local representative offices that they would be eligible to apply for an SEZ license. Thant Zin, a director in the finance ministry's Financial Regulation Department, told the Nikkei Asian Review that letting foreign insurers into Thilawa was an "initial step" in the insurance sector's liberalization.
Over 20 international companies have opened local offices in Yangon in the last three years, and are eagerly awaiting the chance to do business in a badly underdeveloped market.
Efforts to modernize the sector began under the previous administration of President Thein Sein, which allowed private local companies to start competing with state-owned Myanma Insurance in 2013 and introduced health insurance from both public and private domestic providers two years later.
But reform efforts soon stalled. That administration's stated plan to open Myanmar to international insurers in 2015 never materialized. Myanma Insurance still has a monopoly on many types of insurance, while private local firms must offer identical policies and premiums and have warned of an urgent lack of a technical expertise.
The National League for Democracy government under State Counselor Aung San Suu Kyi is hoping to build a modern robust insurance sector in which domestic and international companies can partner, or potentially compete. As a member of the Association of Southeast Asian Nations Economic Community, the country is committed to liberalizing a range of sectors, including insurance.
"There have been no [SEZ] applications yet, but we just sent out the notification," Thant Zin said on March 24. Thilawa is also a limited market with three incumbents, and any companies seeking a license "will have to take market share from the Japanese firms," he added.
Companies applying for an SEZ license need to prove 10 years operational experience in the type of insurance they intend to provide, at least $1 billion in total assets or paid-up capital and a minimum B+ credit rating from rating agencies such as Moody's, Standard & Poor's or Fitch, according to Thant Zin.
The local representative for one international insurer said the move to open up the zone was "very positive," but that his company had yet to decide whether to apply.
Each license costs $30,000 and must be renewed yearly at a cost of $10,000.
"The market size [for Thilawa] is tiny, less than a few thousand employees, so it doesn't make sense for most of the life insurance firms," he said. "General insurance companies might apply, and with all the factories there are [opportunities] for marine cargo insurance and fire insurance."
The license theoretically gives permission to operate in any special economic zone in Myanmar, Thant Zin said. But two other zones under development -- Kyaukphyu in Rakhine State and Dawei in Tanintharyi Region -- have faced long delays and made little progress.
Foreign insurers are hoping the government's next step will be issuing licenses to operate outside of special economic zones. Thant Zin expects to see foreign companies allowed to compete in the wider insurance market later this year, but the terms under which they will be allowed to operate are still under debate.
The insurance regulator invited local and international insurers to the capital Naypyitaw late last year to give their thoughts on a proposed liberalization roadmap. This finished framework has since been handed over to the government for consideration, he added. The government now has to decide on key issues such as whether to allow 100% foreign-owned insurers or require joint-ventures with local companies, and how many international licenses to provide.
Local insurers say that while they welcome the chance to partner with international peers and build capacity, they are worried that being forced to compete with wholly-foreign companies would put them out of business.
Thant Zin said the regulatory department has made its own recommendations on these issues to the government, but would not disclose details.