Changing demographic present growth opportunities for Thai insurers

A steady demand for life products has continued to fuel growth in Thailand’s insurance market, with shifting demographics and government efforts to boost personal and retirement coverage providing opportunities for insurers. In 2017 life insurance premium totalled BT602bn ($17.43bn), an increase of 5.9%, according to the Thai Life Assurance Association (TLAA). The performance slightly exceeded the full-year forecast of BT600bn ($17.37bn) made by the market regulator, the Office of Insurance Commission (OIC), and was also above the broader GDP growth rate of 3.9%. The largest contributor to life insurance premium in 2017 came from renewals at BT43bn ($1.2bn), followed by BT103bn ($3bn) in first-year premium, with the rest derived from single-premium insurance. The TLAA has forecast growth of between 4% and 6% in life insurance premium for 2018. This marks the first year the TLAA has forecast premium growth in a range as it is uncertain about the overall impact of the mortality table introduced by OIC in September 2017, which is expected to lower premium costs by 5-30%.

Ageing Concerns

Rising demand for life products is welcome news for the government, which has worked to improve life insurance penetration and provident fund coverage in light of shifting demographic trends, with 25% of the Thai population set to be 65 years of age or older by 2040, compared to just 10% in 2015. This makes Thailand one of the fastest-ageing countries in the region, according to the latest World Bank estimate released in April 2016. At the same time, the number of Thais active in the workforce will fall by 10% by 2040, resulting in a lower taxation pool. This decline will act to reduce the state’s capacity to support those in retirement, particularly at a time when demand for health and social services will be rising.

According to current projections from government agencies, the state’s contribution to existing retirement funds, including public employees, will need to increase by more than 140% between 2016 and 2024 to reach BT698bn ($20.2bn). The shifting demographics present an opportunity for insurers, according to Michael Plaxton, former CEO of insurance firm FWD Thailand. “Health insurance for the elderly is an untapped market; the over-60 group represents 5% of the client base,” Plaxton told OBG. “However, insurance companies are bad at investing in new products tailored for the ageing population,” he added.

Mandatory Provident Fund

Although the ageing population will place pressure on state resources, it will also provide new opportunities as insurers look to invest premium. This could see capital market liquidity improve, particularly following the introduction of a new compulsory retirement fund in 2018, which is part of the government’s response to the ageing workforce. Under the proposal approved by the Cabinet in February 2017, employers and employees will be obliged to pay into a mandatory provident fund (MPF). Contributions start at 3% of the worker’s salary, before rising to 10% within 10 years. The upper cap for contributions will be based on a salary of BT60,000 ($1737) per month, while employers of people earning less than BT10,000 ($289) per month will be required to contribute on behalf of their staff. Initially, the scheme will only apply to companies with at least 100 employees, though it is expected to be rolled out to smaller firms. Companies already operating retirement fund systems will not be required to implement the MPF initially, however, in time they may need to increase contributions in line with the MPF levels. The proposed reforms will increase wages and levy commitments once the scheme reaches maturity and could affect companies’ bottom lines and hiring practices.

Not everyone will benefit from the new fund, however. While MPF makes coverage mandatory for those in the formal workforce, there are many Thais are employed in the informal sector, including self-employed workers and those in family businesses, none of whom are expected to be covered by the MPF.