by Mosleh Ahmed FCA, Director,
The Professional Consortium, Colombo, Sri Lanka and CEO, Microinsurance Research Centre, St Albans, UK
In Myanmar, the largest target group for insurance is the farmers, some 20 million in number or 50% of the adult population; the majority of farmers are located in rural areas. This group is the largest user of credit thanks to rural loans disbursed by Myanmar Agriculture Development Bank (MADB), MFIs/NGOs and cooperatives.
Even though the farmers in Myanmar have the individual needs, for them opportunities for insuring against known agricultural risks and perils are not there. Suitable insurance products are not on the market, and the insurance companies are not actively developing any products or marketing to this sector of the population because adequate regulations are not in place. There is a lack of awareness, insurance education and the ability to pay. A large majority of the farmers are in remote areas and the cost of delivery and premium collection is high.
A large number of the farmers resort to using credit or savings to financially cope with the losses after having experienced an insurable risk for which they did not have a regulated or unregulated insurance product. The use of credit or savings to deal with these risks is costlier and less efficient than if, for example, a microinsurance product was to be offered to them bundled with loans. This way microinsurance could be delivered to them at a relatively low cost. In addition, it means that credit is now being directed to risk management instead of the productive purposes for which it was obtained. Using savings, in turn, reduces the assets accumulated by households and leaves them more vulnerable for future shocks.
In this case, the absence of microinsurance reflects the underdeveloped market as well as regulatory restrictions on the types of insurance products that may be provided. Yet, Myanmar Insurance Corporation (MIC) does not offer agriculture or health microinsurance, which are also not included in the product lines allowed by regulation for newly registered private insurers.
Understanding and perception of insurance
Very few rural poor in Myanmar knows about insurance or microinsurance. Only bank borrowers, who are required to obtain insurance in order to safeguard their collateral, know about it. Those who have insurance do not always value it and do not obtain additional cover beyond what is compulsory. They do not understand the difference between investment and insurance. Many think insurance is a type of investment and they will make again after the end of investment period.
I visited several rural areas in Myanmar spoke to a large number of farmers. The perception among the majority of the farmers is that they cannot afford insurance. This, however, is combined with a low level of knowledge about insurance and its costs. The farmers are open to the idea of insurance and feel that the insurance companies need to market their products in the rural areas and provide more information about the products. When the concept of agricultural insurance was explained to them a majority of them showed interest in buying it.
Target market
Main crops in Myanmar are paddy, maize, potato, sugar cane and vegetable (tomato). While paddy is not considered to be a high-value crop, green gramme, maize, potato, tomato and sugarcane are cash crops with high market value; most of these products are exported. The farmers are interested in having their cash crops insured. While visiting Heho, in southern Shan state, I found the farmers to be interested in insuring maize and potato, while in the Inle lake area, their interests are on insuring tomato, and in Taun Gyi Township area it is maize. In the delta regions in the south farmers are interested in insuring green gram and sugarcane.
Affordability
A large proportion of the rural people in Myanmar (around 40%) does not have any disposal income and are not in a position to buy insurance; they would require some sort of subsidy. Of the remaining, around 10% have the ability to pay for insurance but are reluctant to buy insurance as they can manage their own risk. This group is not aware of catastrophic risks or covariant risks they are exposed to. The other 50% can afford to buy insurance and would benefit from it. However, this group needs extensive financial literacy and insurance awareness as their perceived value of insurance are quite low and they place a higher priority to spending money on other family needs or buying gold or productive assets.
Desired products
The insurance products available in Myanmar are limited, undermining the value that rural people can receive from the insurance service. In the first instance, rural people are forced to use inefficient financial services types simply because the more efficient services are not available.
One example of inefficient financial service is insurance linked to credit, such as credit life insurance, which is one of most popular insurance for the low-income market receiving credit from cooperatives and MFIs/NGOs in Myanmar. In some cases, the cover may be enhanced to cover other family members or add additional cover such as funeral insurance or disability cover. Credit life insurance products are initiated by the lender to cover the risk of non-payment, rather than the borrower. Borrowers are compelled to take the credit insurance to obtain a loan. As such, credit-linked insurance has facilitated the provision of loans to millions of people who may otherwise not have been able to access credit. However, this is a very inefficient use of financial resources.
The agricultural industry in Myanmar suffers tremendous losses due to weather-related risks. , attention needs are given to weather-related insurance to manage the risks that affecting agricultural production. In particular, the use of weather-index products needs are given attention because of the simplicity of the mechanism. The challenge is either to replace credit life insurance with weather-indexed products or bundle the weather-indexed products with credit life insurance, thereby give the farmers a wider coverage. Such a product is particularly relevant to Myanmar given the risks faced by most of the farmers.
The absence of agricultural insurance has been felt particularly in the market for agricultural credit. All but one of the rice specialisation companies in Myanmar has failed, at least in part, as a result of insurable weather-related losses, which triggered numerous defaults amongst farmers. A Majority of the farmers in Myanmar mitigate their risks through the sale of assets, savings, credit or reduced consumption. This diverts the intended use of these financial mechanisms from productive purposes to risk mitigation, mostly agriculture-related risks. Whilst the introduction of crop and livestock insurance is complex and in most cases require subsidies, a narrower focus on the provision of insurance for agricultural input credit is more achievable.
MIC does not offer agricultural insurance and the new regulated insurers in Myanmar are not permitted to offer this cover either. While meeting the top management of MIC, I noticed strong interest by them in agricultural insurance, and there is a likelihood of this product being offered by MIC in the future. If done, it will enable the government to achieve some of its priority objectives for rural poverty alleviation in Myanmar.
Credit life insurance is not currently offered by any of the private insurers in Myanmar. It is also not one of the product lines that new insurers are allowed to offer. However, in the absence of such an offering, a number of MFIs and cooperatives have taken on the insurers role to provide credit insurance to it borrowers. Credit life insurance is a much simpler product than crop or livestock insurance and is offered on a commercially sustainable basis in most countries. The private insurers should be able to offer this product. The offering of credit life insurance also presents a number of consumer protection risks, which should be dealt with proactively in regulation.
During my visit the farmers in Heho in southern Shan state showed interested in insuring against drought and pest, while the farmers in the Inle lake showed interested in insuring against hail storm and plant diseases; in Taun Gyi Township area the interest was in insurance against excessive rainfall. In the delta region in the south, the farmers are exposed to floods and excessive rainfall, and insurance against such risks were of interest to them.
Distribution channel
In Myanmar, inadequate distribution infrastructure limits the reach of insurance services by creating barriers and increasing transaction cost for the rural farmers and limiting the viable expansion of the insurance service operators. The insurers use only the conventional distribution channels for marketing their products. MIC distributes its products through its agents. The agents receive an upfront sales commission of between 10% (life policies), 18% (marine policies) and 20% (non-life policies) with no commissions paid on renewals. The agents are not considered to be employees of the insurance companies and sell insurance on a part-time basis.
A typical agent holds a basic graduate degree and goes through a two-month training session before being allowed to sell insurance. They also receive refresher training (two weeks) every year. These agents can sell all MIC products. Only MIC can give the training and all private insurers are required to use agents trained by MIC.
I could not meet any distribution channel organisations and no interviews were conducted in this area. Many of the rural farmers have access to the following types of organisations; the farmers that I met mentioned some of these names:
- Providers of microfinance services: There are 71 cooperative societies, 13 Non-government Organisations (NGOs) and 6 International NGOs (INGOs) operating in Myanmar. Of the cooperative societies, The Central Cooperative Society, the apex body, has over 21,000 sub-societies under it. Another cooperative society, The Union of Savings and Credit Federation, has over 1,600 primary level societies under it.
- The INGOs include big names like Acleda Myanmar, GRET, MDP, Mingalar Myanmar, PACT, Proximity, Save the Children and World Vision Myanmar.
- Agricultural Development Companies such as Agri-specialised Companies and Rice Specialized Companies (38 such companies including Gold Delta and Kittayar Hinthar)
- Union Solidarity and Development Party
- Myanmar Women Affairs Federation
- Money Lenders such as the Indian Chettiars (around 1,600)
- Village Revolving Funds
- Village Savings and Credit Groups
At present, there are regulatory restrictions against the above organisations from acting as distribution channels for any insurance products from licensed insurance companies, except for travel insurance. However, there were indications that the regulatory authority may be persuaded to allow some of the above organisation to act as distribution channels for all insurance products when revising the insurance regulations.
Travel insurance is distributed through a range of travel agencies and MFIs/NGOs, which are appointed as travel agencies, and Highway Express Bus Lines. This is the only exception to the regulatory restrictions against an organisation acting as a distribution channel.
There is limited experience with distribution of voluntary insurance policies in the country other than through agents and brokers. NGOs/MFIs distribute life insurance products bundled with the loan, most of which are compulsory. The only exception is travel insurance policies, which, as stated above, can be distributed by travel agencies, MFIs/NGOs and Highway Express Bus Lines. This may provide useful experience to consider other alternative distribution channels in future. Apart from travel companies, insurers do not leverage any distribution partners. Possibilities exist for insurers to leverage alternative distribution channels such as SFIs, private banks or MFIs and other aggregators for distribution.
Insurance agents in Myanmar do not collect premium; it is paid in cash or by cheque at the offices of the insurance company or at the branches of selected banks. Premiums are mostly paid annually but government employees tend to pay monthly using cheques. Policyholders of voluntary policies have the option of paying quarterly or annually. The lack of premium payment infrastructure may present problems for the development of microinsurance or agricultural insurance policies particularly in reaching out to the rural and remote areas. Insurance may have to be bundled with other products, such as loans and credits, fertiliser, seed or insecticides/pesticides to overcome the high cost and difficulties in reaching clients in those areas.
Existing microinsurance products
Currently, there are no regulated microinsurance or agricultural insurance products in Myanmar. However, there are three microinsurance-like products: the snakebite insurance, highway insurance and property insurance. Only licensed insurance companies provide these products. Myanmar had ‘Livestock Insurance’ in the 1980’s covering livestock being moved from one city to another city. Only government pharmaceutical companies who used horses for snakebite serum production used it. This insurance is no longer available.
Snakebite insurance premium is Kyats 5,000 and provides coverage of Kyats 500,000 in the case of death resulting from snakebites, or up to Kyats 400,000 for medical costs on survival after snakebites. This product is very popular with farmers and other rural households.
Highway insurance covers accident death or injury while travelling in a vehicle on any highways in Myanmar. These policies are sold through the bus and other travel companies; the biggest portion of the travel insurance premium comes from highway express bus lines. These policies are voluntary, except for bus companies, and only cover accidents for one trip. Some NGOs, appointed as agencies, also sell a large volume these policies. The policy cost Kyats 300 for one unit, with individuals only permitted to buy up to two units at one time. The terms of the policy, which are fixed across the different providers, include a payout of up to Kyats 3.5 million, in the event of death and up to Kyats 2.4 million in medical costs in case of injury in a highway accident. This product is mandatory for all passengers in public conveyance plying on highways; the bus companies buy the insurance to cover their fare-paying passengers.
Property insurance covers damage to buildings, contents and stock due to catastrophic events like a flood. The premium can be up to Kyats 300,000 for a policy of Kyats 3 million sums assured. The premium starts from 0.28% and goes higher, depending on the building being insured. For example, brick and concrete built buildings are considered to be low risk and carry a lower premium (0.28%) and bamboo built structures are considered to be of highest risk and carry a high premium (2.0%). A Higher premium is payable depending on the content and stock covered and the physical location of the building.
Except for the benefits under the government’s social insurance scheme, health and funeral insurance products are not available in the market, despite these being the most important risks faced by a Myanmar household. Also, neither agricultural nor credit life insurance is currently offered by any regulated insurer in Myanmar.
Insurance can also play a critical role in securing credit when clients cannot offer collateral. The government is currently piloting a loan insurance scheme for SMEs. SMEs can borrow up to 60 percent of the sum assured without collateral if they buy the loan insurance. It is being currently piloted in Yangon only. If it works well, it will be next implemented in Mandalay and other regions.
The government of Myanmar (GoM) has social insurance schemes for all employees in Myanmar. Only government employees are currently participating; employees of private companies do not participate. Self-employed persons, construction workers, agricultural workers, and fishermen are not covered under this scheme.
The Central Co-operative Society (CCS) initiated a credit-life insurance product in 2011 for its member co-operatives; this is not regulated. This is a voluntary scheme for cooperative borrowers in addition to the basic level cover that is included in the loan. The voluntary insurance provides additional benefits. The scheme covers in excess of 50,000 lives.
International NGOs/MFIs such as GRET, PACT, World Vision etc. offer unregulated compulsory insurance coverage to their borrowers. They use welfare or provident funds to provide some type of risk cover and the majority of around 1 million MFI clients in Myanmar are covered by these schemes. The risks covered include life, household structure, fire, flood, storm and crop.
My focus group discussions with the farmers in Myanmar showed that there is strong interest in agricultural insurance among them. Some government officials and insurance executives also supported the need for agricultural insurance in the country. A large number of farmers are willing to buy crop insurance if offered to them. The Managing Director of MIC, who is also the Secretary of the Insurance Business Supervisory Board (IBSB), and the Director of the Department of Relief and Resettlement, Ministry of Social Welfare, Relief and Resettlement both expressed strong support for agriculture insurance. MIC has prepared a report in support of agriculture insurance in Myanmar. The report concludes that there is not enough data available for product development, insurance education is lacking and there is a lack of trained human resources. This is not a public document and was not available to me for reference purposes. A few Japanese insurance companies have also shown interest in crop insurance and have conducted workshops in Yangon. They requested GoM for data on rainfall, crop yield etc. but GoM could not supply the data, as GoM is not collecting agricultural data.
Conclusion
The farmers in Myanmar have considerable exposure to weather-related risks but insurance against such perils is not currently available in the country. The regulatory environment in the country at present is not conducive for agricultural insurance. Under the current regulation, MIC is the only insurance company in the country that would be allowed to offer agricultural insurance; however, the regulation does not mention agricultural insurance specifically.
The insurers do not have the know-how to develop such products and mechanisms for delivery are not in place. Infrastructure such as weather stations is very limited, data relating to agricultural production or yield and loss or damage is not readily available. Agricultural insurance cannot be offered in most areas of the country at present.
Myanmar would not be ready for agricultural insurance for another 3 to 5 years. However, one or two pilot projects on weather-based crop insurance may be launched on a very selective basis in the delta region, where there is a density of farmers. Multi-peril and multi-crop products are not advisable.