Reforms aim to boost foreign participation in Thailand's insurance market

Steadily improving macroeconomic growth and shifting demographics are creating favourable conditions for the expansion of Thailand’s insurance industry, with reforms aimed at boosting foreign participation supporting a bright outlook for the remainder of 2018. The life insurance segment continues to dominate the country’s insurance landscape, accounting for the bulk of premium and policyholders, benefitting from the ageing population and rising popularity of investment-linked products, which should keep it on a steady growth path in the coming years. The smaller non-life segment is also poised for steady expansion in the short to medium term, with low penetration and density, leaving room for growth. Although the sector remains overcrowded, the industry regulator Office of Insurance Commission (OIC) is increasingly pushing for consolidation. At the same time, dozens of non-life players are battling for market share amid strengthening macroeconomic fundamentals. An increased deployment of innovative delivery channels should keep the industry on a steady upwards trajectory.

Industry Structure

The insurance industry is led by the life insurance segment, with Thailand-based Allianz Ayudhya reporting that life lines account for 70% of total premium income. Within the non-life segment, motor vehicle coverage accounted for 57.7% of the general insurance portfolio in 2017, followed by personal accident, at 12.9%, industrial all-risk cover, at 11.1%, fire insurance, at 4.5%, health insurance, at 3.8%, and marine lines, at 2.5%, according to the most recent OIC data. All insurers, brokers and agents in Thailand are regulated by the OIC, which operates under purview of the Ministry of Finance (MoF). While insurers are now permitted to operate both branches and subsidiaries in the country, market overcrowding has led the OIC to suspend new licensure as it moves to encourage market consolidation. The Thai Life Assurance Association (TLAA) reports that the top-five life insurance companies by first-year premium (FYP) – which are defined as the premium collected from all new policies sold – during the first half of 2017, the latest available data, were AIA Thailand with BT9.1bn ($263.4m) of FYP, Muang Thai Life Assurance (MTL) with BT8.7bn ($251.8m), Thai Life Insurance with BT6.8bn ($196.8m), Krungthai-AXA Life Insurance with BT6.8bn ($196.8m), and Bangkok Life Assurance, with BT2.9bn ($83.9m).

In the non-life segment, the OIC reports that the top companies by market share in 2016, the most recent year for which statistics are available, were Viriyah Insurance, with BT33.3bn ($963.9m) of direct premium and a 15.9% share of the market, followed by Dhipaya Insurance, with BT19.9bn ($576m) of direct premium and a 9.52% market share. Bangkok Insurance recorded BT15.5bn ($448.7m) of direct premium in 2016, for a 7.4% market share, followed by Muang Thai Insurance, with BT12.2bn ($353.1m) of premium and a 5.83% market share. Synmunkong Insurance rounded out the top five non-life companies in 2016 with BT9bn ($260.5m) of premium and a 4.3% market share. Approved non-life insurance companies must maintain paid-up capital of at least BT1bn ($28.9m), while insurance providers must hold at least BT4bn ($115.8m).

Outside of this, minimum capital requirements for life insurers and reinsurers are set at BT500m ($14.5m), and BT300m ($8.7m) for general insurers and reinsurers. Solvency margins are set at 140% of risk-based capital, according to a January 2018 report by global law firm Norton Fulbright Rose, and policyholders are protected by a General Insurance Fund and Life Insurance Fund, both financed by industry levies, which assist policyholders in the event a company’s licence is revoked. Payments are limited to BT1m ($28,900).

International Participation

Foreign investors are permitted to own up to 25% of a domestic insurance company, less one share, and up to 49% with permission from the OIC. In early 2017 the MoF moved to liberalise the sector by loosening foreign ownership restrictions, allowing a licensed insurance company selling both life and non-life products to increase international ownership up to 100%, and external investors to comprise more than half of a company’s board of directors. Multinational law firm DLA Piper reported that while the move was a notable shift, it is in keeping with the MoF’s increasingly liberal regulatory stance, following an earlier move to boost foreign ownership limits. Any company wishing to exceed the 49% foreign ownership restriction must apply to the MoF and meet their criteria, including having at least 10 years of sector experience, being financially stable with a minimum “A” credit rating issued by a recognised international agency, and being sufficiently capitalised to develop its Thai operations and support broader industry growth.

Recent Growth

In its “State of the Insurance Market in Thailand 2016-17” report, Thai Re reported that Thailand’s insurance sector was the eighth largest in Asia in 2015, and the 27th largest globally. Direct premium income reached $22bn in 2016, while growth hit 4.5%, against 5.4% in 2015. Thai Re also reported that the local insurance sector was the second largest in the ASEAN Economic Community in 2016, with an insurance density estimated at 5.5% of GDP, meaning insurance expenditure per person averaged $334 against $332 in 2015. Thai Re projected that the industry grew by 6% in 2017. Growth estimates vary, however, and in a June 2017 report on the Thai insurance sector, Allianz Ayudhya reported that the market has been losing momentum since 2012, with the non-life segment lowering by 2.1% in 2016 – its first decline since 1999, while life insurance growth rose to 6.6%, for a combined average growth rate of 3.9%.

Despite this modest expansion, Allianz Ayudhya reports that Thailand’s insurance industry premium, as a percentage of GDP, are on par with Germany, while per capita insurance expenditure is at the same level as China. OIC data shows that insurance density and penetration have risen in recent years, with the office reporting total industry density moving from BT2830 ($82) in 2002 to BT4670 ($135) in 2007, to BT8571 ($248) in 2012, BT10,519 ($304) in 2014 and BT11,526 ($334) in 2016. Combined life and non-life insurance penetration rose from 3.09% in 2002 to 3.34% in 2007, 4.61% in 2012, and 5.43% in both 2015 and 2016.

Life

The OIC reports that life insurance premium have risen substantially in recent years, recording a compound annual growth rate of 12.9% between 1997 and 2016, while jumping from BT201.9bn ($5.8bn) in 2007 to BT296.2bn ($8.5bn) in 2010, BT390.5bn ($11.3bn) in 2012, BT536.8bn ($15.5bn) in 2015 and BT568bn ($16.4bn) in 2016, the most recent year for which statistics are available.

Data from the TLAA also shows that total FYP in the life segment has risen significantly between 2012 and 2017, indicating robust, organic growth. The TLAA reports that FYP increased from BT82.9bn ($2.4bn) in 2012 to BT94.1bn ($2.7bn) in 2013, BT108.3bn ($3.1bn) in 2014, and BT119.7bn ($3.5bn) in 2015, for a compound annual growth rate of 13.05%.

Life FYP growth moderated in 2016 to BT110.4bn ($3.2bn), but remained steady in 2017, reaching BT50.4bn ($1.5bn) during the first half of the year. In March 2017 the TLAA projected that the life segment’s premium income would rise by 6% that year to hit BT600bn ($17.4bn), accelerating slightly from the 5.7% growth rate of 2016, with life premium reaching BT568.3bn ($16.5) in the same year. In March 2018, global agency Fitch Ratings, citing TLAA data, reported that the life segment grew by 5.9% in 2017.

Non-life

Although it has not kept pace with the life segment, the non-life insurance market has been growing, with OIC data showing that total non-life premium recorded a compound annual growth rate of 7.01% between 1997 and 2016. Non-life premium rose from BT100.8bn ($2.9bn) in 2007 to BT125bn ($3.6bn) in 2010, BT179.5bn ($5.2bn) in 2012, BT205.4bn ($5.9bn) in 2014, and BT211.8bn ($6.1bn) in 2016, the most recent year for which figures are available.

Similarly, although non-life penetration and density have improved since 2002, they continue to lag behind the life segment, with the OIC reporting that non-life penetration grew from 1.09% of GDP in 2002 to 1.11% in 2007 and 1.45% in 2012, to a high of 1.57% in 2013, before moderating to 1.56%, 1.47% in 2014 and 2016, respectively. Non-life density rose from BT995 ($29) in 2002 to BT1553 ($45) in 2007, BT2699 ($78) in 2012, BT3112 ($90) in 2015 and BT3131 ($91) in 2016.

Motor

The non-life segment is dominated by motor insurance, with the total value of premium in 2017 recorded at $3.7bn. Though this figure represents over half of the non-life portfolio, the Thai General Insurance Association has forecast that over the next 10 years the motor segment’s share is likely to decrease as the non-life market breakdown becomes more balanced due in part to continued growth trends in segments such as personal accident and health. These two product lines have grown to constitute 13.3% of the market in 2017, up from to 3.5% in 2002.

One of the reasons for the motor segment’s current dominance is the sharp 24.8% growth in premium in 2012, followed by 13.9% in 2013. This was partially due to the 2011-12 first-time car buyers’ programme, which awarded a tax refund for initial car purchases in an effort to stimulate growth and consumption.

However, shortly after, in 2014, annual domestic vehicle sales dropped by 33.7%, and although there has been a gradual recovery, including strong sales figures reported in the first quarter of 2018 (see Industry & Retail chapter), they are still well behind the growth peaks recorded previously. As a whole, the non-life market is gradually moving towards detariffication, with voluntary motor insurance at the forefront of this shift. In a market where profitability is a challenge due to high competition, tariff liberalisation and increased foreign participation as a result of reforms introduced in 2017 could result in consolidation as companies adjust to an increasingly customer-centric market.

“There are over 60 companies in the non-life market, with a heavy concentration in the property and casualty segments; however, many smaller ones are undercapitalised and suffer from a lack of technologies,” Andrew Bentley, CEO at Aon Thailand, told OBG. “Moving forward, companies should recapitalise or merge.”

Growth Factors

In the life segment, the TLAA reports that the low-interest-rate environment has pushed many life insurers to move to investment-linked products, as well as those targeting specific customer segments, with Nusara Banyatpiyaphod, TLAA’s president, telling local media that several firms are shifting their strategies to focus on long-term premium payment plans in an effort to capture policyholders who might not be able to afford one-time policy payments. Government efforts to boost the domestic economy – GDP growth reached 3.9% in 2017 and is forecast to hit 4% in 2018, from 0.9% in 2014, 2.9% in 2015, and 3.1% in 2016 – should help boost consumer purchasing power and support industry growth, although high levels of household debt will continue to be a challenge. Thai household debt remained elevated at 78.3% of GDP as of the third quarter of 2017, though this was an improvement from 79.9% at the end of 2016.

The life segment is also expected to continue to be the leading driver of insurance industry growth in the coming years as a result of demographic trends, with Allianz Ayudhya reporting that Thailand’s old-age dependency ratio will rise from 15.2% in 2017 to 52.5% in 2050, pushing life insurance industry growth rates to an annual average of 9.3% until 2027. According to Allianz, economic recovery should see broader insurance growth pick up to 7.5%, annually, until 2027.

New delivery channels are also expected to support growth. In August 2017 the OIC moved to allow the sale of insurance policies through electronic channels, using electronic means as part of the sales policies, and issuing policies and paying claims through electronic channels. Online sales exclude the offer of insurance policies through telemarketing, with only insurers, brokers and applicable banks with a broker licence permitted to conduct online sales. “Currently, online insurance sales account for a relatively small proportion of the market, with mainly motor and travel products being purchased online. For life, agents and bancassurance are the vital vehicles for distribution, while non-life agents, bancassurance and brokers are still dominating the market,” Kheedhej Anansiriprapha, executive director at Thai General Insurance Association, told OBG. David Korunic, CEO of Krungthai-AXA Life Insurance, agreed that unfortunately product choices are still limited through electronic channels.

Consolidation Imperative

Other recent changes in the sector include the OIC’s 2017 reform, which has been welcomed as a strategy to support industry consolidation, although overcrowding continues to remain a challenge for the life and non-life segments.

In a 2017 report titled “Non-life: A paradigm shift”, the Asia Insurance Review reported that the authorities continue to favour a “white knight” strategy in which foreign entrants are encouraged to purchase weaker local insurers, with Mark Breuil, regional president of Asia Middle East at Berkshire Hathaway Specialty Insurance, arguing that new foreign ownership legislation reinforces that strategy. However, as Breuil and other stakeholders have noted, efforts to encourage industry consolidation have not been as successful as it has been in other ASEAN economies. Indeed, the report notes that in Thailand’s non-life segment, 36 companies have a market share of less than 1% with little to no chance of reaching a critical mass, while a planned second phase of the country’s risk-based capital framework has yet to come to fruition.

Overcrowding of the market is also a concern in the life segment, according to Michael Plaxton, former CEO of FWD Thailand. “There are too many insurance companies in Thailand; the life segment has over 20 providers, which is excessive. Thailand is a good market for international companies, but the consumer base is very conservative and it is driven by traditional plans offered by Thai providers,” Plaxton told OBG.

Outlook

Moving forward, the life segment is expected to continue driving sector growth, while non-life players are likely to continue grappling with higher claims expenses and rising competition in the motor vehicle segment, which is expected to put smaller companies at risk in the short to medium term. In March 2018 global ratings agency Fitch Ratings reported that sales growth from new bancassurance partnerships, in addition to a larger pool of licensed agents permitted to sell investment-linked products, should keep the life segment on its strong growth path in 2018, with the TLAA forecasting the life segment to continue its expansion by between 4% and 6% in 2018.

According to the TLAA, the introduction and implementation of a new mortality table by the OIC will lower premium prices in certain life products, creating some uncertainty around expansion in overall written premium, although Fitch reports that the segment will nonetheless record a robust performance in the sales of unit-linked and annuity products, even as ordinary products remain the main growth driver.

According to Fitch, the life segment’s relatively low penetration rate also provides new opportunities to sell higher-margin products, further strengthening the segment’s potential. The outlook for the non-life segment is less positive, however, with Fitch Ratings reporting in September 2017 that while non-life growth had picked up in recent months, the segment’s prospects continue to remain uncertain because of subdued public and private consumption, in addition to rising competition and declining profitability in the motor segment. This has made smaller companies more vulnerable to losses, particularly as the motor segment moves towards detariffication, which provides insurers with even greater flexibility to design and price their products. However, Fitch Ratings also reports that the recent approval of large construction projects, as well as a proposal to make health insurance premium tax deductible, should boost non-life growth in 2018.

The larger market players should continue to maintain robust capital levels, with capital adequacy ratios remaining well above industry regulatory minimums. This suggests a period of industry consolidation could be forthcoming, particularly given new foreign ownership legislation, which should in turn support improved non-life, and broader insurance industry growth.