Despite Rapid Premium Growth, Cambodia's Insurance Sector Has a Long Way to Go

February 24, 2009

(BestWire Services Via Acquire Media NewsEdge) Cambodia's insurance industry has seen rapid premium growth in recent years, which largely outpaced the country's gross domestic product, yet the market has not seen marked development.

In the past year, Cambodia's insurance industry experienced 18% growth in premium income, in comparison with an estimated GPD growth of 6.8%. However, the insurance market size has only a total value of US$20.5 million. This makes it hard to attract new players, particularly foreign insurance companies, which could play a critical role in developing the market, said Youk Chamroeunrith, general manager and director at Forte Insurance, a leading local insurance company.

"We need to have more foreign investment first to drive premium growth," said Chamroeunrith in an interview. However, the global financial crisis has put pressure on insurance growth because of declining foreign investment. Chamroeunrith said premium growth already slowed down by about 2% in the past year.

Lack of a legislative framework and a low level of insurance awareness in the country are the biggest hurdles for insurance development in Cambodia, said Chamroeunrith. The country now only has nonlife insurance operators and product offerings are limited to commercial business lines for corporate clients.

Now, Cambodia only has five domestic insurance companies: Forte Insurance, Caminco, Asia Insurance [88751], Campubank Lonpac and Infinity Insurance, and one local reinsurer, Cambodia Reinsurance Co., which is 80% owned by the government, according to the Ministry of Economy and Finance.

Slow Development A Malaysian company is expected to open shop in Cambodia in partnership with a local company. Malaysia's Kurnia Asia Pte. Ltd. [86752] plans to set up a nonlife joint venture with Canadia Investment Holding Ltd., parent company of Canadia Bank in Cambodia.

State-owned Caminco also plans to sell its 75% shares owned by the government, and then a joint venture may be formed with a Thai insurance company and local investor.

In general, Cambodia's insurance sector is facing the dilemma of small market size to attract new entrants. Chamroeunrith said this is one factor that ultimately constrains further market development without more players. Established in 1999, Forte Insurance takes up about 50% of market share in terms of total nonlife insurance premiums in Cambodia.

Insurance companies generate a majority of insurance premiums from corporate sector's property, fire, motor and medical business lines in Cambodia. Individual premium only accounts for a very small proportion of insurance business, said Chamroeunrith.

Corporate clients are a major driver for future premium growth in the country, which just opened up the market for business in recent years, said Chamroeunrith. The government has tried to attract more direct foreign investment, and this will contribute to drive insurance demands. Cambodia attracted US$10 billion in foreign investment last year and the market should have the potential to grow, noted Chamroeunrith.

Currently, life insurance is nonexistent in Cambodia, where only 1% to 2% of the nation's 14 million population can afford insurance. License for life insurance was made available last year but there is no legislative framework laid down for investment products.

Life insurance is not developed in the Cambodia because people have little knowledge on the importance of buying insurance for protection. The lack of a regulatory framework is one obstacle but the fundamental issue is a low level of insurance awareness across the country, according to Chamroeunrith.

The World Bank identified life insurance as an important financial sector as its development can ultimately encourage public savings and drive productive investment. In this area, Cambodia has some way to go.

(By Iris Lai, Hong Kong bureau manager: Iris.Lai@ambest.com)