Challenges for Insurance


Economic News

22 Jul 2010
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Though many of Thailand’s leading insurance firms are predicting solid annual results, with policies written and premiums earned expected to rise, it is unlikely the industry will achieve the growth levels recorded in recent years as the effects of the global economic crisis take hold.

Having seen premium levels increase by around 23% annually between 2000 and 2007, the pace of growth slowed last year, easing to an estimated 8%, with the Office of Insurance Commission (OIC), the industry’s regulating authority, predicting a similar rate for 2009.

With around 25 companies in the life insurance sector, and about 70 operating in the non-life segment, Thailand’s overall insurance industry still has room for growth. Penetration levels are quite low, with just 22% of Thais holding life policies, just over half the level in neighbouring Malaysia. There is near blanket coverage for vehicle insurance, though 66% of the policies are represented by compulsory third party policies.

Private automotive insurance is one segment of the industry likely to be hit by the economic downturn. While the motor insurance segment earned $1.8bn in 2008 through direct premiums, a rise of 4.5% from a year earlier, this is expected to fall in 2009 as some existing policy holders look for cheaper options and fewer new vehicle policies are issued.

New car sales are expected to fall sharply this year; some industry predictions are putting the number of cars driving off the lot at 200,000, down from 600,000 in 2008. Owners of vehicles already on the road, estimated at around 12m, are also looking at cutting costs.

According to Kritvit Sriphasutha, the deputy managing director of Viriyah Insurance, more vehicle owners are reducing their insurance coverage and taking out low cost policies due to the economic downturn.

“People are cautious about their spending. You will see the three-plus policies, which provide coverage of about $5800, selling like hotcakes,” he said in an interview with local media in late June.

In response to the slowdown of the economy, a number of Thai insurance firms are looking at ways to expand their ability to reach clients, utilising selling tools such as telemarketing and increased television promotion campaigns to generate sales.

Currently, around 60% of all the sector’s income comes through its network of some 400,000 agents, with bancassurance accounting for a further 30%, and the remaining 10% coming through call centre sales and telemarketing.

Other firms are offering cut-price products, such as the insurance arm of Siam Commercial Bank, which in June launched a new motor insurance policy offering third-party life and injury protection. As an introductory offer, for just $210 customers, receive coverage of up to $2900 for vehicular damage, with prospective policy holders only having to give their names, contact numbers and car registration to be covered.

The new policy offer was part of a campaign the bank hopes will drive its bancassurance business up by 40% this year, Adisorn Sermchaiwong, an executive vice-president with SCB, told the Bangkok Post in mid-June.

Though slightly less ambitious, the Muang Thai Life Assurance Company, the country’s third-largest life insurer, has also targeted increasing total premiums by 25% this year, well above the industry average of 8% predicted by the Thai Life Assurance Association in February.

While confident of the company’s projected growth figures, Muang Thai Life’s director and senior vice-president, Pakineenard Tiyachate, said the recession could impact the sector.

“Our performance normally outpaces economic growth,” she said in an interview with the Bangkok Post earlier this year. “But what we are most concerned about is that the economic slump might affect renewal policies.”

The company was also adopting a more conservative approach to its investments as a result of the financial crisis, with 81% of funds being placed in debentures and a further 10% in government bonds, she said.

Though insurers themselves are happy to invest in government bonds, there have been some concerns that clients might turn away from life insurance as an investment in preference to state-backed bonds. These concerns have been dismissed by Sara Lamsam, the president of Thai Life Assurance Association and the head of Muang Thai Life Assurance, who said in early July that the government’s recent $1.46bn bond issue would not affect the life insurance industry.

Life insurance was considered to be a longer-term investment while the latest bond has a duration of just five years and as people with high levels of savings usually distributed their investments into many channels, the government bond would not affect people’s purchasing power to buy insurance, Sara said.

Although the sector may remain confident of its capacity to expand this year, competition within the insurance industry itself is likely to increase, with smaller firms coming under pressure from larger rivals. At the same time, decline in disposable income and weaker consumer confidence could also dent prospective earnings.

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