Page 17 - AEC Digital Edition

Figure 1: ASEAN financial services sub-sectors
identified for liberalisation by 2015
Sub-sectors ASEAN member countries
Direct life insurance Indonesia, Philippines
Direct non-life insurance Brunei, Cambodia, Indonesia, Malaysia,
Philippines, Singapore and Vietnam implementation of ASEAN initiatives. However, the AMC
Reinsurance and Brunei, Cambodia, Indonesia, Malaysia,
retrocession Philippines, Singapore and Vietnam
Insurance intermediation Cambodia, Malaysia, Indonesia,
Philippines, Singapore and Vietnam reflecting the political, social and operational factors of
Services auxiliary to Brunei, Cambodia, Indonesia, Malaysia,
insurance Philippines, Singapore and Vietnam
The member states have agreed that there should be
no restrictions to the first two of these four modes, with
exceptions due to bona fide regulatory reasons only, such
as public safety, which will be subject to agreement by
all ASEAN member countries on a case-by-case basis.
Despite the 31 December 2015 goal, liberalisation of these
two modes is far from complete. The cross-border supply
of insurance services and cross-border consumption of
insurance services are still widely restricted in the AMC.
For the third of these modes, “commercial presence”,
foreign (ASEAN) equity participation of not less than 70%
should be allowed for the services sectors and other market
access limitations should be progressively removed, a goal
which has not yet been met across the board.
Finally, in a move towards the implementation of the
last mode, “presence of natural persons”, the ASEAN
agreement on the Movement of Natural Persons was signed
in November 2012 to facilitate the conduct of natural
persons engaged in the trading of goods, services, and
investment between member states. The scope of this
agreement is a limited measure affecting the temporary
entry or stay of persons of a member state, into the territory
of another member state. This will cover business visitors,
intra-company transferees and contract service suppliers,
but does not apply to measures regarding residency or
employment on a permanent basis.
Opportunities for the insurance industry
The ASEAN Economic Blueprint will encourage an increase
in cross-border trade within ASEAN, which we anticipate
will directly boost demand for commercial lines such as
trade-credit, marine and surety insurance business.
Insurance penetration rates in ASEAN markets are
generally low (less than 6% according to the Swiss Re sigma
Report, 2013). With increasing awareness, low penetration
rates and strong economic growth prospects, we would
expect the demand for life and accident and health
insurance products to grow.
We anticipate that the surging digitalisation in ASEAN
will change the marketing landscape from the traditional
agencies and brokerage models to digital mass-distribution
of insurance products.
As the insurance industry opens up in ASEAN, there
will be the free flow of key skill employees among member
states to support growth. The anticipated free movement
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of key skilled labour would also aid the development of the
financial and regulatory framework of the AMC.
Challenges to liberalisation
There is no formalised institution, such as the European
Commission, to push through reforms and execute
agreed policies. The ASEAN Secretariat supports the
coordinate the efforts to liberalise and reform local markets
among themselves with regard to the AEC.
As can be expected in emerging markets, the AMC are
progressing economically and socially at different rates,
each member country. There is also no uniform regulatory
framework, therefore insurers engaging in cross-border
supplies will be subject to market conduct, consumer
protection, data privacy, cyber security, and tax laws
applicable to the local jurisdiction of each member country.
Liberalisation of foreign ownership rules
The seven countries (listed in figure 1) that are set for
liberalisation across various insurance types by the end of
2015 are likely to have a greater structural backbone, once
ASEAN leaders have agreed how, in practice, to proceed with
liberalising the insurance industry. For Laos, Myanmar and
Thailand, however, specific plans are yet to be developed
and therefore full liberalisation of the insurance industry
is not likely until nearer 2020.
In Indonesia, foreign equity participation is already fairly
liberalised. Indonesia permits up to 80% foreign ownership
in insurance companies and insurance intermediaries. It
is possible to retain foreign ownership beyond 80%, upon a
request to the insurance regulator (Otoritas Jasa Keuangan
or OJK). The OJK will approve applications on a case-by-
case basis, subject to certain requirements, including a
mandatory need to increase the capital in the company.
The Malaysian insurance industry is open to foreign
investors, with a limit of 70% on foreign equity ownership
of insurance companies, and no limits on the foreign
ownership of Malaysian insurance intermediaries.
In Singapore, there is no foreign equity participation limit
on Singaporean insurers and insurance intermediaries,
providing for a much more liberal market compared to
other member countries.
Thailand did not specifically commit to the liberalisation
of its insurance industry by the milestone date of 31
December 2015, and currently implements one of the more
restrictive of the ASEAN regulatory insurance regimes. The
foreign investment threshold is low, generally 24.9%, which
can be lifted up to 49% with permission from the insurance
regulator (The Office of the Insurance Commission).
However, a November 2015 proposal indicated that both
life and non-life insurance will be removed from the list
of businesses for which permission is required for foreign
ownership to exceed 50%. This change is due to come into
effect at the end of this year.
Cross-border supply
In Indonesia, the cross-border supply of insurance services
relating to insured objects in the country through an
unlicensed foreign insurer is not allowed, except under
AEC – IMPACT ON INSURANCE • DECEMBER 2015 15