Walailak Keeratipipatpong

INSURANCE The number of life insurance agents undergoing training has increased sharply in the face of more competition, new products, eased regulations and the growing presence of Thai-foreign joint ventures that are actively improving the skills of their staff

The number of sales agents in the life insurance industry has, increased substantially over the past few years due to the growing competition in the market and the entry of a number of new companies.

The Insurance Department reported recently that there were 60,000 applicants sitting the department's authorised agents' examinations between January and May, a rise from 40,000 in the same period Iast year. Of this year's applicants, 26,000 passed and were licensed compared with 19,500 from the first five months of 2000.

The entry of the new agents increased the authorised sales workforce to 279,896, some 85% more than in 1998.

Big players that have sent their staff to sit for the test include American International Assurance (about 22,000 employees), Ayudhya CMG Life (10,000), Thai Life Insurance (7,000), and Thai Prasit Nationwide (3,000). The Insurance Department attributed the significant increase in the number of those undergoing training to increased competition and the growing presence of Thai-foreign joint-venture insurance companies.

The two most active firms in expanding agent numbers were Thai-foreign jointventures: Thai Prasit Nationwide Co, a joint venture between a Ieading US financial services group and Thai Prasit Insurance; and Prudential TS Life, with the UK-based Prudential Group.

Thai Prasit plans to increase its number of agents to 3,300 this year from 1,800, while Prudential aims to strengthen its marketing campaigns with 1,100 agents compared with just 235 last year.

Noravat Suwan, head of the Insurance Department, said it was a positive trend that insurers were emphasising their own human resource development rather than headhunting from other companies and paying inflated salaries as in the past.

The trend reflected the large number of unemployed people in the financial services industry who were finding the insurance industry more attractive, he said.

MORE PROFESSIONALISM

The Insurance Department and the Securities and Exchange Commission are working on regulations to approve unit-linked products, and insurance companies are actively developing their staff in anticipation.

Muang Thai Life Assurance vicepresident Sara Lamsam said that at least two services, bancassurance and unit-linked policies, would become more popular with policyholders in the future.

His company has begun a project to train 5,000 staff as financial consultants to sell the products once they are available in Thailand.

As with the wealth-managers programme of Advance MLC Assurance Co, a Thai-Australian venture, these professional financial consultants will be trained to provide a specialised service. They work closely with customers and policyholders to understand their financial need before structuring appropriate packages for them.

The Insurance Department in May signalled to insurance industry operators that discussions with the SEC on legal aspects of the new financial products were in progress and that there are positive signs that the products will be available soon.

The SEC and the department want to ensure that the new regulation unit-linked products must be outlined appropriately to ensure mutual interest between unit-holders policyholders.

The SEC, at this stage, is considering three options in terms of making the product available. First, a private fund licence from the SEC, in which life insurance companies would wave no restrictions, is possible.

Second, life insurers could act as unit-selling agents and sell life insurance policies together with invesment units. Third, a limited brokerage licence, which the SEC is drafting could be sought.

The Insurance Department several other policy developments the pipeline such as credit rating, changes in regulatory policies governing insurance companies investments, and potential mergers It plans a feasibility study of an independent credit rating instituttion that would rate insurers based on their financial position and service performance.

However, Fitch Ratings (Thailand) has recently begun operations and will help achieve the department's objectives in encouraging companies to develop credit ratings.

It is a joint venture between Thai Life Insurance Co, Muang Thai Life Assurance Coand London-based Fitch Ratings Ltd.

The investment criteria for life and non-life insurance companies, as outlined by the department, are to ensure adequate diversification of investment assets and to limit investment risks in certain classes of assets.

In the absence of quality benchmarks such as a credit rating system, amending regulations to allow flexible investment by risk profile rather than by quantity limits, seems diffficult.

Credit ratings for insurance companies would also protect consumers by giving them more information.

However, Mr Noravat said ratings would be voluntary.

In terms of investments, the department is also in the process of adjusting regulations to ease limitations faced by insurance companies that have complained about onerous conditions. New regulations proposed include:Investments in derivatives for hedging purposes are to be allowed, letting insurance companies manage funds more effficiently. Idle assets or assets that are not in use for production or for income generating business operations will be allowed to generate cash inflows in rents during the resale period. The investment portion in state bonds not guaranteed by the Finance Ministry, is to be doubled to 40%, allowing more flexibility in investing in quality state enterprises. More investment in secured bonds and corporate debentures, with a rating higher than BBB, or other quality investments will be permitted.

Permission for insurers to buy stocks of foreign insurance companies listed on stock markets abroad is still being considered by the SEC.

The investment assets of the life insurance industry, at the end of 2000, totalled 226.2 billion baht compared with 195 billion the previous year.

It reported 13.95 billion baht in investment income last year, up 4.32% over the previous year. However the rate of return fell to 6.17% from 6.86%.

Non-life business produced 2.37 billion baht in income from a gross turnover of 54.7 billion baht in investment assets in 2000.

This was a fall of 15.6% compared with 1999, attributed mainly to a fall in earnings from fixed deposits.

LOWER RETURNS

Another landmark for the insurance industry in the first half of the year was the decision by the government to allow companies to pay a minimum of 5% interest to customers.

This was down from the 6% rate on savings insurance policies after the industry had complained that the low rate of returns on investments made it impossible to keep paying higher interest rates to customers.

The lower rate is applied on a voluntary basis and for new customers only. But, given the stiff competition, companies, especially big ones, still offer 6% or more to try and capture bigger market share.

However, the new rate of 5% is likely to be applied by companies late in the year after they finish redesigning their products.

Companies are also in the process of working out new products to match the new mortality tables for males and females and the calculation for pfemiums.

Based on the new mortality table, the average lifespan of a male is 64.55 years and 73.63 years for a female.

The shorter life-span makes premiums for men more expensive. In the past, the premiums were calculated without regard to gender and based on an average lifespan of 67.33 years.

However, the new calculations are unlikely to harm the prosperity of the life industry which is expected to grow by 25%, to 23 billion baht, in terms of premiums and new business.

Total premiums, comprising renewals and new premiums, would also grow by 25%, to 95.1 billion baht.

From January-March this year, the life industry recorded 4.88 billion baht in new premiums, up 18% from the first quarter last year. Total premiums rose by 19%, to 20.63 billion baht.

MORE MERGERS EXPECTED

To attract foreign investors, the Commerce Ministry is now in the process of amending the 1992 Life and Non-Life Insurance Act to increase foreign equity to 49%, from the current 25% limit.

Simultaneously, it has asked local companies to raise capital funds to 500 million baht for Iife insurers and 300 million baht for non-life insurers.

However, it is likely that many small insurance companies, particularly non-life insurance firms, cannot cope with the requirement.

They have alternatives, however, including finding foreign partners or entering mergers, to strengthen competitiveness.

To assist these small firms and to encourage mergers, the Insurance Department has discussed with the Finance Ministry a proposal to cut a range of taxes that may be incurred from the merger process.

It was expected that three or four mergers would be announced in the second half of the year.

The entry of more foreign insurance companies is also anticipated this year.

In the first half of the year, there were several new joint ventures announced between local insurers and big names abroad including United States-based Liberty Mutual Group with Narai Insurance, South East Insurance and Singapore's Asia Life Assurance Society and the latest deal, Thai Charoen Assurance and Japan's leading insurance group, Tokio Marine Life Assurance.

© The Post Publishing Public Co., Ltd. 2001
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