Thailand's insurance sector set for strong recovery

After a short-lived slowdown related to political uncertainty, economic weakness and the ending of a first-time car-buyer scheme, the insurance sector in Thailand is beginning to grow again at a healthy pace. Given the relatively low penetration rate, the increasing incomes in the country and the ageing population, it is expected that the sector will soon expand again at or near its historically fast rate. Regulatory changes are helping to improve the safety and soundness of the sector, and slowly allowing for more foreign participation. However, high household debt remains a concern and could stand in the way of a rapid recovery, while consolidation remains a work in progress. Some regulatory fixes and additional liberalisations are needed if the number of insurers is to be reduced.

Growth Dip

Growth slowed in 2014 due to the weak economy but began to pick up in 2015 with the stabilising of the political situation following the 2014 coup. Declining automobile sales have been a particular problem. Under the previous government the non-life sector benefitted a good deal from a first-time car-buyer scheme. However, with the end of the scheme in December 2012, premium growth dropped from 28% in 2012 to 13.2%. the following year.

Slowing auto sales caused premium growth to stall also. In 2014 non-life premiums were up by just 1.1% compared to the year before. In 2015 growth stood at 2%. A drop in domestic auto sales in the first half of 2015 meant that motor insurance grew by only 0.9%, according to local media reports. Many insurance companies resorted to price cutting and higher commission payouts to agents to maintain growth. Because of the slow start to 2015 and a lack of consumer confidence, insurance sales suffered. In the first half of 2015, total premiums were up only 2.3% on the same period the previous year, with life premiums up 2.6% and non-life up 1.3%.

By the end of 2015, the sector seemed to be rebounding, especially in the life subsector, where premiums in 2015 ended up expanding by 6.7%. The recovery is expected to continue, with the Thai Life Assurance Association (TLAA) looking for 9% growth in 2016. The president of the TLAA told the press in February 2016 that the main factor holding back a faster rise and the return of double-digit growth, was the high household debt in the country. Despite this, the sector believes that overall premium expansion will remain strong as a result of the government’s efforts to implement reform. The sense is that the new administration is starting to improve governance and boost economic activity, meaning that conditions will quickly improve for the industry.

At just over 5%, insurance penetration in Thailand is low, but good in comparison to other countries in the ASEAN region. In terms of the headline number, it is topped only by Singapore, with penetration above 6%. Thailand has better insurance penetration than even Malaysia or Brunei Darussalam, which have higher per-capita incomes. Some observers put penetration in Thailand as high as 5.9%. Still, all agree there is considerable room to grow, as penetration is still below the rates found in more advanced economies. Hong Kong and Japan, for example, are both above 10%.


Industry executives say that the best way to maintain and improve profitability and growth is to utilise technology. The use of new systems and platforms will help insurance companies reduce dependence on human resources and lower their headcount, thereby reducing operating costs. In this respect, some innovations in the sector have been reported recently. Viriyah Insurance, which was established in 1947 and provides a wide range of non-life policies, has developed the Viriyah Smart Claim product, which utilises mobile devices and Google Maps to facilitate traffic accident investigations. It also has a Fast Track Repair programme, that aims to have minor damage on automobiles fixed within 24 hours of a collision. Arthapas Cheuasangpun, an analyst at Viriyah Insurance, told the local press that technology is key to the industry. With the right investments in hardware and software, the company can send an inspector to a claim in 20 minutes, while it can use video conferencing to monitor repairs as they are being undertaken.


The insurance sector is regulated by the Office of Insurance Commission (OIC), which operates under the supervision of the Ministry of Finance. The country has a number of classes of compulsory insurance, including motor third-party liability, aviation liability, workers compensation, personal accident for boat passengers, inspectors liability and hazardous goods transportation, according to insurance brokering firm HLAP.

While non-admitted insurers are technically prohibited from carrying on business within the country, the law is seen as silent on whether cover can be purchased from companies outside the country to cover risk within. Policies are protected by the General Insurance Fund and the Life Insurance Fund, but payout is limited to BT1m ($30,100) per policy. Core functions cannot be outsourced. These functions include: risk underwriting, collection of premiums and loss adjustment. Claims must also be evaluated in house, however, support functions may be outsourced. These include: audit, accounting and IT services.

Insurers are facing pressure from new regulations and higher capital requirements. They also have high operating costs and high loss ratios. According to a report on the Asia-Pacific region by the law firm Norton Rose Fulbright, the minimum registered capital for life insurers is BT500m ($5m) and has been at that level since 2013, while for general insurers that number is BT300m ($9m). Risk-based capital has been in place since 2011 and solvency margins have been instituted. Rates on some regulated products are considered too low, and the Thai General Insurance Association is calling for a re-examination of motor insurance premiums, as the premiums have not kept pace with rising repair costs.

The Third Insurance Development Plan, which has been introduced by the OIC, runs from 2015 to 2019. Under the scheme, industry standards will be improved, transparency will be increased and cooperation will be enhanced. Capital levels will also be raised and innovation in the sector encouraged.

Insurance Act

In 2015 major amendments were made to the Life and Non-Life Insurance Acts of 1992. The amendments are the Life Insurance Act and the Non-Life Insurance Act of 2015 and, according to the Thai law firm Tilleke & Gibbins, they deal with many issues, including restrictions on shareholders and directors; deposit, reserve and capital requirements; fund investment requirements and policy wording approval; licensing requirements; reporting requirements; the establishment of funds to protect policy holders; and penalties for failing to meet regulations.

Under the new amendments, it is now possible for insurance companies to raise funds by issuing debt, act as a liquidator for another insurance company and utilising money that is not claimed by policy holders for more than 10 years.

Most significant were the changes made to restrictions on the foreign ownership of local insurance companies. Now non-Thais can hold up to 25% of the stock of an insurance company without approval, rather than the “less than 25%” stipulated by the law previously. In addition, the power of the finance minister to adjust the 49% ownership limit (the 25% limit can be broken with OIC permission) has been expanded to include situations where an insurance company is in trouble and needs financial support. When the limit is broken, it must be done in a transparent manner, with the approval and the reasons for the approval published by the Royal Gazette.

The law firm DLA Piper notes that the reasons for breaking the 49% limit have been extended in ways that are significant for international investors and suggests a softening of the restriction. Previously, the breaking of the limit was restricted to cases where public harm could be caused by the failure of an insurer. Now the finance ministry can issue a waiver for cases in which foreign participation could help promote the soundness of an insurer or the sector. However, the law firm Clifford Chance notes that the new 25% limit is not enough to block special resolutions, which can be passed with exactly 75% of the vote. But the law firm adds that the new law removes the requirement that a holding company of a Thai insurer be owned by a majority of Thai shareholders.

Long-Term Prospects

The ratings agency Fitch has predicted that Thailand’s ageing population and higher demand for protection will support the growth of insurance products. The agency notes that the expanding mid- to high-income segments and low insurance penetration rate in comparison to more advanced countries presents a considerable upside in terms of potential sales, and predicts a rise in the sale of wealth-protection products. Indeed, one effect of rising wealth is that the traditional insurance channels are diversifying, giving rise to new methods of distribution “Given Thailand’s growing middle class, bancassurance continues to increase in significance as a distribution channel, currently accounting for about 55% of the life insurance market,” Michael Plaxton, CEO of FWD Life Insurance, told OBG. “While agency accounts for much of the remainder, this channel is effective in penetrating the upcountry market, which may shift in the near future as incomes rise outside of Bangkok.”

Mind The Gap

While the sector’s regulatory framework has improved, Standard & Poor’s notes that gaps remain that could expose it to considerable risk in the future. The ratings agency believes that insurers have weak catastrophe modelling, outdated models and weak underwriting standards, which could result in serious future losses. It adds that excessively high competition and the battle for market share has led to compromised risk-management practices, which further exposes the sector to losses.

Insurance in Thailand benefits from several tax incentives. Individuals can take a deduction of up to BT100,000 ($3010) a year on life insurance premiums paid to an insurer authorised to conduct business in the country, according to a report by PwC. This only applies to policies that have a duration of at least 10 years, and premiums towards health and accident benefits within the policy are not deductible. There are also restrictions on savings-type insurance plans, and under certain circumstances the deduction may be disallowed. Subject to some limitations, premiums paid into pension life plans are also deductible. The OIC has been pushing to allow for a tax deduction on health insurance, in the hope that this would stimulate growth in the non-life subsector. However, the government has so far not responded positively to requests. Despite this, demand for health insurance is likely to be boosted as a result of government efforts to adjust the terms of the country’s national health programme. Indications are that individuals will have to pay more of their health care costs in the future.


Thailand’s membership in the ASEAN Economic Community (AEC) is seen as an important development in the insurance sector, but actual liberalisation is expected to take some time. The opening up of financial services is dependent on so-called national policy objectives. Rather than happening on a regional multilateral basis, each market will allow for greater foreign participation as and when it makes sense for them. Thailand’s 49% limit is the lowest cap in the region, except for Myanmar where foreign ownership of insurance is not permitted. Swiss Re also notes that Thailand has a de facto ban on the issuing of new insurance licenses. Most countries are more open than Thailand. Indonesia and the Philippines have said that they will open life insurance, while almost all AEC member states have committed in the past to open “services auxiliary to insurance”, although this did not include Thailand. Liberalisation in the insurance sector in ASEAN is slowly unfolding, albeit in phases. Of the four modes of service supply in the sector, as identified by the World Trade Organisation, Mode 2 – consumption abroad – which involves consumers travelling to foreign countries to purchase insurance products, is already allowed. Malaysians and Indonesians, for example, go to Singapore to acquire life insurance products. But modes beyond that are seen as harder to achieve. Mode 3 – the establishing of a legal presence in another country – is allowed to a limited extent, but further opening will be case by case and slow, while Mode 4 – allowing professionals to move to another jurisdiction and offer service – is not allowed and will be difficult to achieve given local qualification requirements. Mode 1 – the selling of products directly from one country to another – is also not allowed and progress is likely to be taken step by step on a bilateral basis. Simple products, such life insurance or car insurance, will probably come first.

Covering Risk

Terrorism has had a mixed impact on the insurance sector. The bomb blast at the Erawan shrine in 2015 increased awareness about the need for certain types of cover. Companies have been enquiring with local insurers about purchasing political violence insurance. But after the terrorist attacks in Paris in November 2015, the cost of political violence insurance increased globally. Trade-credit insurance has also been in demand lately. Due to global economic difficulties, companies want to cover the risk related to non-payment on the part of counterparties. On the other hand, the Thai insurance sector has been concerned that the various global terrorist attacks that have taken place in recent years could result in a drop in merchandise trade, which could affect the sale of related insurance products.

In 2010 political demonstrations caused about $1bn in damage and led to a wave of claims in the insurance and reinsurance markets. While insurers did challenge the validity of some of those claims based on terrorism and civil commotion exclusions, concern rose again in 2014 amid tensions caused by an attempt by the government at the time to introduce a controversial political amnesty bill, which led to anti-government protests.

Insurers also faced major losses following the floods in 2011. According to an analysis by Lloyd’s, the event caused $45.7bn of property damage and $12bn of claims were paid out, most relating to business interruption. According to the Geneva Association’s report “Insuring Flood Risk in Asia’s High-Growth Market” the floods caused manufacturing and distribution delays worldwide and dropped global industrial output by 2.5% as a result. Worldwide, insurers were unprepared for the severity of the impact the flood would have, occurring as it did within months of the 2011 Tohoku earthquake in Japan. It was one of the 10 costliest events ever for insurers and changed the way the global sector prepares for these risks.


Although a policy of consolidation is being pursued to reduce the number of insurers in the country, there are significant barriers to achieving this. First, foreign ownership limits prevent the large global players from entering the market and leading combinations. Second, at present, the tax law does not allow for an efficient way to combine insurance entities. According to PwC, available merger and acquisition tax schemes, including entire business transfers and partial business transfers, do not work well for the insurance sector, the main issue being that in the event of a merger of two entities, the reserves of both would be subject to tax. According to PwC, this fact has held back at least one major transaction in the sector. Despite this, a few deals have taken place. In early 2015 Thai Life Insurance purchased 50% of Thai Cardif Life Assurance (TCLA) from the European firm BNP Paribas Cardif. As a result of the merger, Thai Life became the third-largest insurance company in the Thai market. This was followed by a 2014 deal which saw Swiss-based firm ACE and a local partner purchase 60.9% of Siam Commercial Samaggi Insurance, a non-life company, for about $185m.

Thailand has around 65 non-life companies and 25 life insurers and, while some academics have noted a degree of concentration in some respects, overall the sector is considered highly competitive. According to the financial services firm AsiaPlus, the top seven companies in the life subsector are: AIA (22.0%), Muang Thai Life Insurance (15.2%), Thai Life Insurance (12.3%), BLA Insurance (11.4%), SCB Life (9.8%), Krungthai-AXA (9.5%) and Allianz Ayudhya Life (5.2%).


The slowdown experienced by the Thai insurance sector, caused largely by the end of the first-time car-buyer programme and political instability, is coming to an end, as the new government restores order and the prevailing trend once again takes hold. The long-term prospects for growth are good and double-digit premium increases are a possibility. Innovation will be important to enable insurers to succeed over time, while government efforts towards consolidation and allowing for more international participation will be key to future growth.

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The Report: Thailand 2016

Insurance chapter from The Report: Thailand 2016

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