Industry Attractiveness
Thailand is ranked by the World Bank as the 17th-best country to do business in the world, a rank that is higher than Germany and Japan. This means that the country’s regulations are conducive to the establishment and running of a local business.
During 2006?2012, the Thai insurance industry registered a CAGR of 11.2% in gross written premium terms. The launch of new products, the development of sales channels, greater public understanding and government measures were the key drivers of this growth.
The floods of 2011 proved to be a defining incident for the industry. The losses suffered by non-life insurers, the subsequent recalibration on the part of reinsurers, and the realization of the government that measures had to be taken to protect the industry from eventualities beyond its control were paramount.
The industry grew from THB327.84 billion (US$9.84 billion) in 2008 to THB509.34 billion (US$16.38 billion) in 2012, in terms of gross written premium, at a CAGR of 11.6%. This was driven by economic growth, rising disposable income levels, the conservative investment strategies of insurers and measures taken by regulators to encourage competition. The industry is dominated by the life insurance segment, which accounted for 60.2% of the its gross written premium in 2012, while the non-life segment represented 24.8% and the personal accident and health segment constituted 15%.
The Thai insurance regulator introduced a risk-based capital framework in September 2011, under which all insurers were initially required to have a minimum capital adequacy ratio of 125%. This increased to 140% in January 2013, with the underlying objective of strengthening companies’ risk management and capital bases. Following the Thai floods of 2011, the government created a disaster fund of THB50 billion. Non-life insurers, which face difficulty in renewing policies because of natural disasters, can use the fund at a reasonable rate.
The stake that a foreign company can hold in a life insurance company in Thailand was increased from 25% to 49% in March 2012. The regulator ? the Office of Insurance Commission (OIC) ? has the discretion to increase this stake beyond 49% for life insurance companies undergoing financial troubles.
Thailand’s life insurance segment is expected to post a CAGR of 8.7%, to value THB464.9 billion (US$16.39 billion) in 2017. The non-life segment is expected to register a CAGR of 9.1%, to value THB178.6 billion (US$6.3 billion) in 2017. The personal accident and health segment is expected to value THB$119.7 billion (US$4.2 billion) in 2017, at a CAGR of 9.5%.
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Segment Outlook
The Thai economy grew at a rate of over 6.4% in 2012,. Therefore, there is substantial scope for life insurers to expand their business in Thailand, as the economy is the second-largest in Southeast Asia and as of 2012 penetration measured 2.7%. The economy is characterized by an expanding middle class population and rising levels of disposable income. This demographic is becoming increasingly sensitive to the need to take out life cover due to the floods of 2011. The average life expectancy of the Thai population has increased from 70 years in 2000 to 74 years in 2012, which signals the increasing need for pension and retirement products.
The potential for segmental growth can be gauged by the fact that in 2012 around 25% of the country’s population were covered by a life insurance policy. It can also be gauged from the fact that the direct premiums collected by life insurance companies in the first six months of 2013 increased by nearly 17.0% over the corresponding premium collected in the first six months of 2012. During the first five months of 2013, the first year life insurance premiums registered growth of around 25% over the corresponding period in 2012.
Thailand’s insurance regulator ? the Office of Insurance Commission (OIC) ? plays an active role in ensuring the growth and sustainability of life insurance companies in Thailand. All companies are required to have a capital adequacy ratio of at least 140% as of January 2014, over 90% of the country’s life insurance companies have a capital adequacy ratio of 300%. The government has also been proactive in helping life insurance companies expand their business by running public relation campaigns to explain the advantages of cover.
The broad range of distribution channels employed by life insurers is an indicator of the sustainability of the premium income generated.
The narrow range of investment options for life insurance companies and the lower value of insurance premiums that can be appropriated to save on tax are factors that may limit the attractiveness of the segment. Companies have mainly been investing in government bonds, state enterprise bonds and low-risk debt instruments. The increasing popularity of guaranteed products may create asset-liability mismatch problems for insurance companies, as the yields on bonds could be lower than the returns guaranteed.
Distribution Channel
In terms of the gross written premium generated, the main distribution channels in the Thai life insurance segment in 2012 were bancassurance, agency network and direct marketing.
The bancassurance channel accounted for 52.1% of the total commission paid to distribution channels in 2012. The value of new business gross written premium collected through the channel increased from THB9.6 billion (US$286.9 million) in 2008 to THB28.1 billion (US$904.2 million) in 2012. This value is projected to reach THB43.1 billion (US$1.5 billion) by 2017. Bancassurance accounted for 49.4% of the new business gross written premium in 2012, and this is expected to increase to 53.3% by 2017.
There are several reasons for the emergence of bancassurance as the leading distribution channel. Local commercial banks directly or indirectly have controlling stakes in at least six life insurers, so bancassurance has evolved as a natural platform for the sale of life insurance products. Also, in areas of low insurance penetration, the bank branch networks are being used as a tool to market insurance. Bancassurance uses existing bank staff to sell life insurance products, and barriers to entry are therefore lower for agencies. Banks also have an incentive to sell life insurance products, as the commission on these products is often higher than investment returns.
Banks have also been increasing sales of life protection products by appending them to home and consumer loans. Life insurers that have been able to derive the most benefit from bancassurance are Bangkok Life Assurance Public Company Ltd, SCB Life Assurance Public Company Ltd, Muang Thai Life Assurance Public Company Ltd and Krungthai Life.
The agency channel was the second-largest distribution channel, and accounted for 40.9% of the total commission paid to the distribution channels in 2012. The agency channel is still very popular among both the lower and higher tiers of the Thai population, and the value of new business gross written premium collected through the channel increased from THB9.6 billion (US$635.7 million) in 2008 to THB28.1 billion (US$786.1 million) in 2012. This value is projected to reach THB43.1 billion (US$1.1 billion) by 2017. Agencies accounted for 42.9% of new business gross written premium in 2012, a figure that is expected to decline to 38.0% by 2017.
Direct marketing was the third-largest distribution channel and accounted for 6.0% of the total commission paid to distribution channels in 2012. The value of new business gross written premium collected through the channel increased from THB2.4 billion (US$71.7 million) in 2008 to THB3.7 billion (US$119.6 million) in 2012. This value is projected to reach THB6.0 billion (US$211.5 million) by 2017. Direct marketing accounted for 6.5% of new business gross written premium in 2012, which is expected to increase to 7.4% by 2017, as insurers look to more cost-effectiveness channels and reduce commission costs. Thai life insurers are also becoming increasingly aware that they have to use direct marketing channels such as telemarketing or direct mail to increase their customer bases.
Industry Drivers
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By GlobalDataAcquisitions and buyouts of stakes expected to impact competitive dynamics
Given the huge potential awaiting to be exploited in the life insurance industry, and also the fact that foreign companies can own up to 49.0% in a Thai life insurer, several acquisitions are expected in the Thai life insurance segment. The acquisitions are expected to be driven not just by foreign companies new to the Thai life insurance segment, but also by the leading Thai life insurers acquiring some of their smaller counterparts.
The acquisition activity has already gained momentum. For instance, in November 2012, Hong Kong billionaire Richard Li acquired ING Group’s Thai life insurance business. In the same month, it was announced that Prudential Thailand will purchase the entire stake held by Thanachart Bank in its fully owned life insurance subsidiary, Thanachart Life. In July 2013, a 15.0% stake in Thai Life Insurance was purchased by Japan’s Meiji Yasuda Life.
Life insurance is highly concentrated
Thailand has a highly concentrated life insurance segment. The five leading companies together accounted for 71.0% of the total direct premiums in 2011. These companies were American International Assurance Thailand, Thai Life Insurance Company, Muang Thai Life Assurance Company, Bangkok Life Assurance Public Company and Siam Commercial New York Life Insurance Public Company.
Formation of the AEC in 2015 to promote the Thai insurance industry
In late 2015, the ASEAN Economic Community (AEC) will be implemented in all 10 countries in the ASEAN region, of which Thailand is a part. Under AEC, the companies in the financial, insurance and other service domains will be free to own and invest in any of the 10 countries. This is expected to increase the inflow of foreign capital into the Thai insurance industry, including the life insurance segment.
Increase in aging population
The proportion of the younger population in Thailand has been steadily declining. According to the estimates of International Labor Organization (ILO), released in March 2012, the labor force increased from 27.1 million in 1985 to 38.0 million in 2011. The youth labor force stood at 4.8 million, accounting for 12.5% of the total labor force in 2011, and has witnessed a consistent decline after peaking 9.6 million in 1989. This represents a potential target base for insurers, for both investment and retirement-related insurance products.
Surge in demand for unit-linked products
Unit-linked products have demonstrated sustained growth in the Thai life insurance market, since their debut in 2009,. This is on account of the demand from growing middle-class population – who do not want their real savings to be eroded – and from younger customers willing to take greater risks in lieu of greater returns in an environment where deposit rates are subdued.
