WORKING FOR GREATER PEACE OF MIND

Thailand 2017 | FINANCE | REVIEW: INSURANCE

Thailand's insurance industry is working to bolster its outlook after a few challenging years, while simultaneously continuing to offer high-quality coverage to Thai citizens.

The non-life insurance space in Thailand is robustly competitive with more than 60 companies competing for market share. However, the powerhouses of the industry still dominate, and five firms combine for a market share of almost 45%. More than 25 small companies are underwriting less than THB 1 billion (roughly USD30.8 million). Around one-third of non-life insurers have foreign shareholders. In the life insurance sub-sector there is better concentration, and 24 companies compete for market share.

In 2015, nearly 58% of all direct premiums came from motor insurance, industrial all risks accounted for almost 13%, personal accident insurance was 12.5%, compulsory motor insurance was almost 8%, fire insurance was roughly 5%, and health was nearly 3.5%.

According to the Thai General Insurance Association (TGIA), a number of factors have proven challenging to insurers, particularly non-life insurers in Thailand. These obstacles include: a generally poor understanding of the value insurance can bring; the perception that compulsory insurance is form of taxation rather than a guarantor of well-being and fiscal responsibility; a highly fragmented marketplace populated by large quantities of small companies, which can translate into restricted solvency and difficulty paying claims; and burdensome and, at times, confidence-undermining delays in claims settlement. After identifying these issues, insurers in Thailand have and continue to expend effort correcting these shortcomings, and the results have been noticeable

Total direct premiums have continued to grow, penetration has increased, and total new policy numbers have grown.

In Thailand, the insurance industry is regulated by the Office of Insurance Commission (OIC), which operates under the auspices and supervision of the Ministry of Finance. The authority of the OIC extends to insurers, brokers and agents. In an effort to combat some of the issues elucidated above, the OIC currently is not granting new licenses for subsidiaries or branches; it hopes that by encouraging consolidation in the industry it can ensure a more consistent and efficient experience for the consumer. Life insurers/reinsurers have steeper capital requirements (THB500 million) than general insurers/reinsurers (THB 300 million), and solvency margin requirements oblige insurers to maintain a minimum capital requirement of 140% of risk-based capital. In the event that an insurer has its license revoked, the General Insurance Fund and the Life Insurance Fund protect policyholders, but payments are limited to THB1 million.

Foreign ownership in Thai life insurers is limited to 25% unless otherwise authorized by the OIC, at which point expanded ownership can only range from between 25% and 49%. For foreign ownership of greater than 49%, approval is required from both the OIC and the Ministry of Finance.

Economic Difficulties and Creative Responses

The years 2014 and 2015 were somewhat challenging for Thai insurers. After four years of double-digit growth in direct premiums, 2014 saw growth of only 1.13% and 2015 had only 2%. However, the TGIA forecasts growth at 3.5% in 2016 and expects that rate to increase further in the coming years.

According to the latest statistics from TGIA, motor insurance accounts for the largest percentage of the non-life insurance space at nearly 58%. Roughly 14% of motor insurance is compulsory coverage while 86% is voluntary. Though motor insurance has faced slower growth rates in recent years thanks to softening demand for new cars, Thai insurers are responding with creative solutions for stimulating growth. In an exclusive interview with TBY, Chai Sophonpanich, Chairman of Bangkok Insurance, discussed some of these strategies. “We hope to put more emphasis on the female driver or to calculate premiums according to distance travelled. We have installed telemetric systems per request of the customer depending on how much they travel and where they go. The less they travel, the less premium we will charge them." By responding to market pressures with cutting-edge ideas, insurers in Thailand hope to regain footing in a slippery market.
While non-life insurers have been faced with challenging markets, life insurers have seen impressive growth. According to the Thai Life Assurance Association, premiums growth was over 20% in 2014 and policy retention was 86%, signaling an increase in awareness about the benefits of insurance. Additionally, the life insurance sub-sector is much more consolidated than its non-life counterparts, with the top-five firms commanding a 72% market share.

The AEC and Thai Insurers

In an exclusive interview with TBY, Ben Assanasen, Managing Director of Bupa Health Insurance, discussed the impact of the AEC on Thai insurance providers. “It is a great opportunity for us with the AEC. Looking at the surrounding countries, we see a lot of people crossing the border and getting their medical treatments here due to the higher standards." Assanasen is excited about the opportunities for growth in the coming years, and he sees regional markets as a natural step in Bupa Health Insurance's coverage strategy. “As the AEC opens up gradually, we will closely monitor the opportunity for expansion throughout ASEAN," Assanasen said. Bupa Health Insurance plans on focusing its efforts on Cambodia, Laos, Myanmar, and Vietnam.

An analysis by the consultancy KPMG identified Cambodia, Laos, Myanmar, and Vietnam as four markets with particular compatibility for Thai insurers. Similar regulatory structures, pre-existing technical expertise, and the level of Thai investment already existing in each of these states make them particularly attractive for Thai companies.

However, not everyone is as optimistic as Assanasen about the AEC and what it means for the regional expansion of Thai insurers. Sophonpanich of Bangkok Insurance struck a more guarded tone, explaining that the various, and some times quite disparate, requirements and regulations of AEC members can have a limiting effect on expansion. “Nonetheless," Sophonpanich concluded, “this will depend on how the local companies operate; if they do a good job and expand reasonably well, they will be able to compete with the foreign firms."
Despite a bumpy road in recent years, Thai insurers are confident about what the future holds, and they expect sustained growth domestically and across the region.