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| There is growing awareness in Cambodia about the importance of taking out insurance policies as the country’s economy grows. KT/ Mai Vireak |
Compared to other Asean countries, Cambodia’s insurance penetration rate is still low. The Law on Insurance 2014, however, offers opportunities for growth in the sector with better protection in the life and non-life segments, write Peter Mewes and Lim Samrithisak.
Cambodia’s insurance sector actually started in 1956 with a few insurers providing a limited service for a relatively small band of users. However, the service was decimated and abandoned in 1975 with the coming of the Khmer Rouge regime. After the regime’s collapse, the insurance sector mainly stagnated for two decades but resumed developing in the early 1990s; although there were few needed regulations in place to govern the sector.
Since then, the first insurance law came into existence in 2000 along with supplementary regulations, which focused mainly on non-life “general insurance” as opposed to life insurance. However, life insurance started to show a presence in the Cambodian insurance market in 2012 and has continued to grow since then.
Since this initial slow development, the insurance sector has gained pace, necessitating more modern and comprehensive provisions now embodied in the Law on Insurance 2014 which largely replaced the 2000 law. The 2014 law basically aims to develop and promote the insurance sector along international lines, provide rules to strengthen the administration of the insurance sector and encourage fair and just competition within the sector. Below are some of the provisions and effects of the 2014 law.
Ministry of Economy and Finance’s key functions and services
Under the Law on Insurance 2014, the Ministry of Economy and Finance (MEF) continues to be the competent authority to regulate and control the insurance business. In particular, its key functions and services are to:
Allocate and manage budgets for the development of the insurance sector to encourage provision of information to the public about the benefits of insurance.
Approve applications for insurance business licenses.
Review annual financial reports of insurance companies.
Appoint insurance inspectors to inspect insurance companies.
Handle applications for voluntary liquidation and dissolution of insurance companies, appoint administrators or liquidators and monitor them.
Provide mediation and conciliation services for insurance sector.
Impose disciplinary sanctions on any insurance companies committing any of the wrongful acts as stated in the 2014 law.
Key provisions of the Law on Insurance 2014
The 2014 law lays down certain formalities that the insurance companies must follow, such as the obligation to explain to the insured every condition in the insurance contract and the meaning of the insurance policy, insurance certificate and/or other relevant documents.
Furthermore, any loss or damage caused by the risks covered in the insurance policy must be indemnified by the insurance company, unless caused by intentional misconduct or fraudulent act of the insured.
The 2014 Law divides insurance into two categories ‒ general insurance and life insurance and includes property insurance, liability insurance and health insurance. Life insurance refers to certain insurance policies being purchased to cover the death of a person or to cover particular conditions of a person such as accidents, serious illness, or normal sickness.
All insurance companies must apply for a license from MEF for operating the following insurance categories:
Life insurance
General insurance
Re-insurance
Micro insurance.
Furthermore, insurance agents, insurance brokers and loss adjusters may also operate in Cambodia provided they comply with licensing and other regulatory requirements, the details of which are to be set out in sub-decrees.
The 2014 law requires that vehicles are compulsorily insured to cover the vehicle owner, driver and/or keeper. Any third party who was injured or died caused by a vehicle that has insurance cover must be indemnified by the insurance company in a timely manner and appropriately according to the actual damage suffered.
The 2014 law also provides for compulsory liability insurance for owners of construction projects or any business for transporting persons either through land, road, waterway, airway, or railway.
Penalties
Below are non-exhaustive examples of some of the penalties imposed on individuals or legal entities as stated in the 2014 law:
- Owner of a vehicle who failed to obtain liability insurance and used the public streets shall be fined up to 1.5 million riel ($375) and required to obtain the insurance.
- Owner of a construction site not obtaining liability insurance shall be fined up to 150 million riel ($3,750) and required to obtain the liability insurance.
- Person whose business is to transport passengers through any means of transportation, who failed to obtain liability insurance for passengers shall be fined up to150 million riel ($3,750) and required to obtain the insurance.
- Person who operates insurance business without a license shall be fined up to 100 million riel ($25,000) and shall cease his/her activities immediately.
- Person who operates insurance business and commits forgery of a document or publishes or provides false information detrimental to public interest or misleads the relevant authority will be punished as below:
b. A legal entity shall be fined up to 300 million riel ($75,000).
In conclusion, it can be said that the Cambodian insurance market has significant potential growth fueled by a fast-growing economy and increased personal income.
Also, there is the increasing concern of Cambodians about the need for insurance and this has resulted in more investors and operators in the Cambodian insurance market.
As more companies enter the market, competition will increase as will the choice, quality and terms of insurance services. Accordingly, the Cambodian insurance industry, although relatively new, is a very important sector and an indicator and constituent in the growth of financial services and the general economy within the Kingdom of Cambodia.
Peter Mewes is a solicitor and head of the insurance practice group in HBS Law, Phnom Penh, while Lim Samrithisak is the firm’s legal advisor.
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