In March 2020, the Insurance Business Regulatory Board (“IBRB”) issued a set of directives to regulate the insurance sector in Myanmar. This legal alert discusses the changes introduced by the IBRB and the implications that these directives hold for the insurance sector.
1. Directive for the Approval of Insurance Products (“Directive 1”)
Through Directive 1, the IBRB seeks to ensure that the terms and conditions/premiums and calculations of insurance policies are transparent and not misleading to customers. According to Directive 1, all insurers must obtain the approval of the IBRB to introduce any new class of insurance products or to amend the terms and conditions of any class of insurance products so approved. Insurers must apply to the Financial Regulatory Department (“FRD“) for approval, by providing the necessary information which includes: the insurance policy (in both Myanmar language and English); definitions of the terms; endorsements (i.e. additional coverage); detailed premium calculation; technical insurance terms; exclusions from the insurance coverage; estimated premiums and reserve calculations; insurance-related general provisions; and the appointed actuary’s report.
An insurer may submit an application to the IBRB for only one class of insurance products at any one time. Following approval by the IBRB for a new class of insurance products, the insurer may apply for another. Where a new class of insurance products is of particular importance to the applicant insurer and should, therefore, be kept confidential, the insurer may directly notify the FRD to this effect.
The timeframe for securing the IBRB’s approval is 90 days from the receipt date of the application, assuming that the application dossier is complete and in order. Directive 1 provides that any class of insurance products which have been approved before the effective date of Directive 1 will be governed by Letter- FRD/IBRB 232/2020 issued on 9 January 2020.
2. Bancassurance Directive (“Directive 2”)
Under Directive 2/2020, two distribution models for bancassurance have been identified. The first is the ‘referral model’ where a financial institution may refer its customers to the insurer. The second is the ‘direct sale’ model where a board member, manager, or employee of a financial institution may solicit and negotiate with its customers on the purchase of an insurance policy from the insurer.
Directive 2/2020 states that to operate under either model, appropriate permissions are needed. Banks are required to obtain approval from the Central Bank of Myanmar (“CBM”), whereas microfinance institutions must secure approval from the Microfinance Business Supervisory Committee (“MBSC”). Separately, the financial institutions would also require a Corporate Insurance Agent License (“CIAL”) issued by the IBRB. Importantly, financial institutions that apply for a CIAL should have at least three licensed insurance agents on its board of directors or management team.
The financial institution must also enter into an agency agreement with the insurer. The Myanmar Insurance Association (“MIA”) is to develop a standardized agency agreement format that will be approved by the FRD.
The financial institution, as a licensed corporate agent, must maintain a list of appointed individual agents and submit this list to the FRD. The inter-relationship between the agent/s and the insurer shall be referenced in the agency agreement and the insurer shall have supervision rights over the negotiations, solicitations, referrals, and sale of insurance products.
Directive 2 also directs that financial institutions are bound by strict standards of confidentiality and must maintain separate records and documents for the insurance transactions where no insurance information may be acquired from a borrower in connection with the provision of credit.
3. Directive for Insurance Agents (“Directive 3”)
Directive 3 seeks to ensure that insurance agents conduct the solicitation of insurance in accordance with the rules and regulations prescribed by the IBRB throughout the term of the respective insurance policies.
According to Directive 3, an insurance agent should obtain a license issued by the IBRB to provide insurance services. Concerning such a license:
- An agent of a life insurance company must obtain a life insurance agent license whereas agents of a general insurance company are to obtain a general insurance agent license. A life insurance company may appoint an insurance agent to act exclusively on its behalf. A life insurance agent not tied exclusively to one insurance company may only act as an agent for a maximum of two. In the case of general insurance agents acting for general insurance companies, the limit is three.
- A corporate insurance agent of a life insurance company, consisting of licensed life insurance agents, must secure a corporate life insurance agent license whereas a corporate insurance agent of a general insurance company must have a general insurance agent license. A corporate life insurance agent may enter into agency agreement(s) with no more than two life insurance companies, three in the case of corporate general insurance agents.
Before applying for an insurance agent license, the applicant must attend the agent training course conducted by the Insurance Agent Training Institute (an accredited registered training institute) or the in-house training conducted by the relevant insurance company and must pass a qualification test conducted by the Insurance Agent Testing Centre (an accredited registered testing center). The qualification criteria are outlined in Directive 3.
The Insurance Agent Testing Centre would then pass on to the FRD, a list of the applicants that qualified. The FRD would review the candidates and report its findings to the IBRB for approval. Approval, upon being granted by the IBRB, is valid for two years and renewal applications must be made at least a month before expiry.
Concerning corporate insurance agents, applications should be made by the company to the IBRB accompanied by the necessary/relevant information. The minimum paid-up capital required for a corporate insurance agent is MMK 15 million. The FRD would review the applications for corporate insurance agent licenses and submit them to the IBRB for approval. Qualification criteria for corporate insurance agents have also been outlined in Directive 3. The corporate insurance agent license is valid for one year and renewal applications must be made at least a month before expiry.
Any financial institution which intends to solicit, undertake discussions, negotiate and collect insurance premiums in connection with the sale of insurance policies on behalf of an insurance company must obtain a corporate insurance agent license issued by the IBRB as outlined above.
Directive 3 provides that an insurance company and a corporate insurance agent must enter into an insurance agent agreement before soliciting, negotiating, undertaking discussions, and collecting insurance premiums in regard to the sale of insurance policies. The insurance agent agreement between the insurance company and the corporate insurance agent shall also be submitted in advance to the FRD. The Insurance Agent Testing Centre shall develop an appropriate Information Management System to maintain a register of licensed insurance agents. The Insurance Agent Testing Centre shall submit the register of licensed insurance agents and such other information as may be required to the FRD through the MIA.
The key responsibilities prescribed under Directive 3 for the insurance companies are as follows:
- The insurance company shall be liable for any losses arising out of the solicitation of the insurance policyholder by the insurance agent;
- The insurance company shall not prohibit reimbursement of the insurance agent for expenses incurred by the insurance agent; and
On the other hand, insurance agents are obliged to inform their customers of the following details:
- The terms and conditions of the insurance policy between the insurance company and the customer;
- The relationship between the insurance company providing the insurance policy and the insurance agent; and
- The commission expected to be received from the insurance company as a result of the successful sale of an insurance policy.
In terms of account settlement between an insurance company and the corporate insurance agent, the corporate insurance agent shall submit insurance premiums collected from the insured to the insurance company within 5 days from such receipt under the insurance agent agreement. However, the insurance company shall be liable for any loss arising due to the corporate insurance agent collecting the insurance premiums on behalf of the insurance company. The insurance companies and the corporate insurance agents shall undertake account settlements at least once every three months. The corporate insurance agent must reconcile receivable commissions and payable premiums in regard to each insurance company.
In keeping with the objectives of Directive 3, several prohibited activities are listed in Directive 3. Some of the important prohibitions under Directive 3 are as follows:
- Soliciting, undertaking discussions, negotiating or providing consultation services concerning any insurance policy in exchange for a fee or commission without holding a valid insurance agent license or corporate insurance agent license;
- Improperly controlling, embezzling or converting the money or property received in connection with the insurance activities;
- Intentionally misrepresenting the terms and conditions of any executed or draft insurance policy or insurance proposal;
- Providing false information to the potential customers, policyholders or insured persons, or failing to disclose or highlight the material information that is likely to have an impact on the decision of the insured;
- Inducing the potential customers to provide false information that is likely to have an impact on the insurance policy to the insurance companies;
- Providing the insured, potential customers or members of the public with false information that could materially affect their decision on executing an insurance policy;
- Forging another person’s name on any document relating to the insurance activities or any insurance policy;
- Being financially irresponsible or behaving in a manner that is in breach of trust, being technically incompetent, being dishonest, coercive, or deceptive in the conduct of the insurance activities;
- Knowingly or willfully making any false or fraudulent statements or representations in the insurance policy application, presenting a false or fraudulent claim or providing false or forged proof of loss or any other document in support of such a false or fraudulent claim;
- Soliciting, negotiating, or selling any class of insurance product which has not been approved by the IBRB;
- Inducing, coercing or engaging in any unbefitting conduct to control the insurance activities;
- Abetting or inveigling insurance agents not to perform their duties honestly; and
- Such other matters as may be prescribed in the rules and regulations issued by the IBRB from time to time.
Directive 3 further provides that any insurance agent, corporate insurance agent, or insurance company which is found to be in breach of Directive 3’s prohibitions shall be liable under Sections 22, 26, 27, and 28 of the Insurance Business Law.
The information provided here is for information purposes only, and is not intended to constitute legal advice. Legal advice should be obtained from qualified legal counsel for all specific situations.
Authors
Partner, Deputy Managing Director & Head of Banking and Finance Practice, DFDL Myanmar
Legal Adviser, DFDL Myanmar
Contact
Partner & Managing Director, DFDL Myanmar/Singapore