Most
insurers saw their business pick up in 1999, but increased
competition means they must pay more attention to customers'
needs
Customers hold all the aces
Charoen Kittikanya
Voluntary insurance policies based
on a driver's age and car model are due to usher in the new century.
The changes apply to 1.6 million vehicles now covered by the
voluntary programme which represents 30% of the 22 billion baht
paid in annual auto-insurance premiums.
The compulsory third-party insurance scheme covering 10 million
vehicles and 70% of premiums is not affected.
The new regulations are designed to ensure fairness, particularly
for consumers, as well as to upgrade the Thai insurance business
to international standards and cope with increased competition
in the liberalised local industry.
Motorists
with good driving records will pay less, while accident-prone
ones will pay more. Motorists can still decline to state the name
of the authorised driver of their vehicle and pay more than if
they agree to coverage for just themselves and/or certain named
persons.
The premium reductions will be up to 50%, compared with 40% currently.
Until now, auto premiums have been determined only by the cc
rating of the vehicle insured.
The new scheme should cool down the daredevils on the roads,
according to Prasarn Nilmanat, deputy managing director of Viriyah
Insurance, the largest motor insurer.
Under the restructured scheme, all insurance companies are allowed
to take into account certain factors when calculating premiums
for their customers. They include the ages and the number of drivers
under a policy, the nature of vehicle use and the size and model
of a vehicle.
A single nominated driver aged 18-24 years will receive a 10%
discount on the full premium, while those in the 25- 35 bracket
will get 15% if they have good records.
Those aged 36-50 will receive 20-25%. Drivers who are older than
50 will get 20% as the risks increase with age.
Insured
drivers with good records will be also awarded a bonus 20% discount
on the first-year premium, 30% in the second year, 40% in the
third and 50% in the fourth.
But the benefit will be reduced for a vehicle with two nominated
drivers because of the higher risk. The discounted rate for two
nominated drivers aged between 18 and 25 years is 5%; 26-35 years,
10%; 36 to 50 years, 20% respectively, while those who are over
50 will qualify for 15%.
As well, penalties of 20% to 50% will be imposed on premiums
of those with bad accident records.
The new system will also offer a 3,000-baht deduction in premiums
for first-class or comprehensive insurance if motorists elect
to pay for minor damage.
A driver whose claims exceed 3,000 baht will be charged a higher
premium in the subsequent year to encourage safer driving.
The compulsory third-party insurance premium for a small car
is 1,200 baht a year.
Voluntary comprehensive insurance for a medium-sized car with
a 1,600cc engine will be 20,000 baht a year.
The Insurance Department will review the premium rate after the
first year of the programme to check that customers are benefiting.
The new structure gives increased protection for third-party
victims of motor accidents. Death or injury will require compensation
of 180,000 baht, compared with 80,000 baht under current law.
Arnop Porndhiti, president of CGU Insurance (Thailand), said
that while the larger discounts demanded by the new regulations
meant lower revenue for insurance firms, the decline would probably
be offset or even exceeded by expected gains from a larger number
of good drivers joining the system.
Currently, owners of nearly all insured cars claim compensation
from insurance firms every year. The rate is very high when compared
with those in developed countries, where only one out of 50 insured
cars is subject to a claim each year.
Mr Arnop said that apart from the country's improving economic
outlook, the new structure would help the now-sluggish general
insurance business to grow substantially in 2000.
Sales Growth Anticipated
The non-life insurance industry should grow by between 4% and
5% in the year 2000 in terms of direct premiums, said Mr Prasarn
of Viriyah Insurance.
However, Mr Prasarn's projection appears more confident than
that of Thai Reinsurance Plc, which expects 1.14% industry-wide
growth to 47.49 billion baht in 2000, compared with 46.95 billion
in 1999 and 58.95 billion in 1997.
Motor insurance, the biggest portfolio of the industry, is expected
to see 0.8% growth in 2000 to 27.91 billion baht from an estimated
27.67 billion baht in 1999. In 1998 the total was 30.31 billion
baht and, in 1997, 37.34 billion baht, according to Thai Reinsurance.
Mr
Prasarn said it was possible in the next two years for the non-life
insurance industry to resume its growth at the level of 1996,
before the crisis, when business was worth 61.18 billion baht,
of which auto insurance accounted for 40.44 billion.
His prediction is not unrealistic, as evidenced by the operating
performance of the listed insurers. Most of them returned to profits
in the first nine months of this year, and the industry recorded
a slight improvement.
According to the General Insurance Association, the industry
earned direct premiums in the first six -months of 1999 the latest
figures available - totalling 22.62 billion baht, a 13.88% drop
from the same period of 1998. Fire coverage generated 4.03 billion,
down 15.38%; marine and transport, 1.03 billion baht, down 18.97%;
auto coverage 13.3 billion, down 13.24%; miscellaneous, 4.24 billion,
down 13.09%; and other business, 2.51 billion, down 23%.
Concerns
Although many firms have improved their performances this year,
they are still desperate to improve cashflow.
'It's easily seen; the cash-strapped firms normally sell premiums
at the cheapest rates to get money quickly. But, in the long-term,
they have to take a high risk of claims,'' said Chai Sophonpanich,
chairman and managing director of Bangkok Insurance.
Low interest rates in the financial system are a stumbling block
for insurers, particularly those which are not financially strong.
In the first six months of 1999, general insurers took a combined
1.598 billion baht in investment revenue, down from 2.567 billion
baht in the same period of 1998. Net profit fell to 1.54 billion
from 2.35 billion, according to the General Insurance Association.
Thai Farmers Research Centre added that low interest rates would
probably dent the earnings of life insurance companies, as they
must pay 6% interest to policy holders under the life insurance
law.
The plunge in interest rates caused the biggest drop in income,
followed by promissory notes and housing loans, the centre said.
Despite indications of a recovery in the second half of this
year, it appears that only the industry's large companies are
benefiting. Newcomers have found it difficult to penetrate the
market and are expected to take at least three-and-a-half years
to establish their presence.
Investment portfolios generated 6.92% of insurance firms' incomes
in the first half of 1999, the lowest rate in five years. The
rate was expected to drop below 6% as the year wore on.
'Income from investment portfolios is an important indicator
of the sector's profits and deficit burdens as well as the companies'
management efficiency,'' the centre said.
Lower interest rates were expected to reduce the revenue of life
insurance companies by between five million and six million baht
in 1999, said Apirak Thaipatanagul, president of the Thai Life
Insurance Association.
Of the industry's investments totalling 150 billion baht, a large
proportion was in bank deposits earning 3-4% interest, compared
with 9-10% a year earlier, Mr Apirak said.
During 1997, life insurance firms earned 10.8 billion baht from
investments including interest rates. Because of the recession
many life insurers shifted to low-risk investments with modest
returns such as bank deposits, government and state enterprise
bonds, and others including Caps (capital augmented preferred
shares) and Slips (stapled limited interest preferred stock) issued
by banks.
Though falling interest rates were now prompting insurers to
look for higher returns elsewhere, there were few options that
would provide impressive earnings, Mr Apirak said.
Insurers were helped by huge accumulated revenue earned during
the boom years. Large companies would be able to absorb for two
or three years the difference between the interest rate they received
from banks and the 6% they have to pay annually on endowment policies.
But he said small and new insurance companies would be hit harder,
given their small customer base and higher operating costs.
To survive the slump, insurance companies have adjusted investment
portfolios by shifting their focus to buying bonds instead of
depositing at financial institutions, as well as by increasing
the number of policies, especially the renewal ratio, the research
centre said.
It said insurance companies should focus on developing more efficient
services, such as ambulances, as well as reducing premiums and
introducing campaigns to attract customers.
But the life sector's prospects are brighter than those of the
non-life sector, based on results for the first nine months of
1999.
Measured by new business, the life sector's income rose by 22.75%
to 9.27 billion baht, of which 7.53 billion was generated by ordinary
premiums, 857.69 million by industrial policies, 873.90 million
by group coverage and 2.57 million baht by personal accident insurance.
Gross premiums earned by the industry increased by 10.1% to 45.30
billion baht, of which 38.02 billion was for ordinary premiums,
5.34 billion industrial and 1.93 billion group, according to the
Thai Life Assurance Association.
Based on interim operating results and an anticipated improvement
in the economy, Mr Apirak, who is also president and chief operating
officer of Thai Life Insurance, expected life insurers would exceed
their original projections for 1999.
New business was expected to increase by 10% or more, while total
premiums, new and renewals, would probably grow by 5% overall,
he said.
In 1998, the life insurance business collected premiums totalling
56.6 billion baht, of which about 84% was in sales to individuals,
as well as 12% to industrial operators and 4% to business employee
coverage schemes.
Premium earnings were down by 3.8% from 58.9 billion baht in
1997. First-year premiums declined by 22% to 8.3 billion baht
from 10.4 billion.
The trend very closely reflects the country's economic growth.
From 1993 to 1996, when the economy was rolling along, direct
premiums grew by an average of 22.9% a year. The contraction began
in 1997 with a 5.5% decline before slumping by 26% in 1998, when
economic troubles peaked, sharply reducing consumer spending.
Motorists
with good driving records will pay less, while accident-prone
ones will pay more. Motorists can still decline to state the name
of the authorised driver of their vehicle and pay more than if
they agree to coverage for just themselves and/or certain named
persons.
Insured
drivers with good records will be also awarded a bonus 20% discount
on the first-year premium, 30% in the second year, 40% in the
third and 50% in the fourth.
Mr
Prasarn said it was possible in the next two years for the non-life
insurance industry to resume its growth at the level of 1996,
before the crisis, when business was worth 61.18 billion baht,
of which auto insurance accounted for 40.44 billion.
