[PHNOM PENH POST]
Life insurance will help to further develop Cambodia’s insurance and
financial markets, though it may take some time to get there. Here’s a
look at the present state of life insurance in the Kingdom and the
changes needed before the industry fully matures.
In August 2011,
the Ministry of Economy and Finance announced a joint venture that
would establish Cambodia’s first life insurance company. The government
will retain a 51 per cent stake in the joint venture and four private
companies from Thailand, Hong Kong and Indonesia will hold 49 per cent.
Presently,
the market consists of six general insurance companies and one
reinsurance company, the latter of which often referred to as an
insurance company for insurers. In 2010, total insurance
premiums
were approximately US$25 million, of which fire insurance represented 25
per cent, motor 20 per cent, engineering 15 per cent and health 13 per
cent.
The corporate sector accounts for the vast majority of the
premium market, while the individual market represents a small
proportion. In the last six years, the average annual premium growth has
been about 17 per cent, although it is believed that less than 2 per
cent of the population can actually afford insurance. In 2010, insurance
premiums represented only 0.22 per cent of GDP, compared with 2.06 per
cent in Malaysia, 1.37 per cent in Singapore and 1.17 per cent in
Thailand.
Given the small size of the market, the low
penetration rate, the lack of participation by individual consumers in
the market, will life insurance, which is generally a family product,
flourish here?
Life insurance itself is a contract or policy,
where in exchange for a premium, an insurance company will pay a
monetary benefit to a designated beneficiary upon the death of the
insured person.
Life insurance isn’t for the benefit of the
person insured. It is meant to provide a measure of financial security
for those beneficiaries that depend upon the insured. As a general rule
the amount of life insurance purchased should cover the insured’s final
expenses such as funeral expenses, medical bills, remaining credit card
balances, car loans and any mortgage outstanding, as well as replacement
income for the dependents.
The insured amount also should
provide coverage for a similar lifestyle for the dependents: for a
spouse until retirement or death, in the case of the absence of
retirement funds or government social security; and for children,
support through university, including educational expenses. A rate of
inflation should be considered in the calculation, as the price of goods
and services will increase annually and educational expenses
historically rise at a higher rate.
Life insurance has had to
overcome cultural issues in Asia and has done so successfully in most
markets. The tradition of families caring for a remaining parent is a
staple Asian value, but is being challenged with the increase of
households with both husband and wife working and families relocating to
urban areas and cities. It was also considered bad luck in some circles
to purchase life insurance on a loved one, though it is now considered
bad luck not too.
Insurance is gaining acceptance in Cambodia,
and it is especially evident in the growth in fire, motor and health
insurance. People are more concerned about their property, and clearly
their lives. With the continued impressive growth in gross domestic
product, improved educational levels in the population, better
employment opportunities and increase in disposable income, insurance
will less likely be considered a luxury item and more a necessity.
As
the stock exchanges gains traction, the insurance industry can progress
to the next generation of life products that incorporate savings. This
will provide both a safety net with life coverage and a vehicle for
savings as an alternative to real estate and bank deposits.
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