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While general insurance remains flat, apart from vehicle coverage, the life insurance industry is taking off

 

INSURANCE

Lively and competitive

WALAILAK KEERATIPIPATPONG

Insurance companies will be allowed to widen their investments to include more low-risk private assets as well as government and state enterprise bonds.

New regulations to be introduced by the Insurance Department early in 2001 will reflect economic trends, officials say.

Existing rules have been under review for almost two years at the request of local insurance companies anxious to reverse weakening returns on investments hit by falling interest rates and the slump in share prices.

They claimed that income from investing premiums in bank deposits was no longer worthwhile as they received only 0.5% to 1% annual interest on large sums. As well, they were restricted by law from expanding their range of investments.

A study by Thai Farmers Bank found that investment returns for life insurance companies in 2000 would be less than 6%, the percentage that the Insurance Department requires insurers to pay clients with savings-linked plans.

In the first half of 2000, the life insurance business earned about six billion baht or 3.14% in average from the total 207.6 billion baht investment.

The returns dropped sharply after 1997, when companies received 9.1%, to 7.2% in 1999 although the investment increased to 192 billion baht from 148 billion.

Regulations amended

Although companies have adjusted their portfolios by, for example, expanding housing loans, they have been unable to make the shortfall in income from deposits.

The Life Assurance Association asked the Insurance Department, headed by Norawat Suwan, for two amendments to the regulations.

First, to allow insurers to lower the interest rate for new customers to 4% from 6% on condition that customers would gain more if the insurer could manage the investment profitably. Second, to float the interest rates. The interest rate changes would not affect current insurance policies but new ones.

The department is considering the request along with moves to widen the companiesû scope for investment.

The department and the Securities and Exchange Commission are also considering a proposal that local insurance companies should be allowed to act as personal financial management advisers with customers' policies used as guarantees for investments in stocks.

Brighter than expected

Based on results for the first half of 2000, the outlook for the life insurance industry is brighter than had been projected. New policies increased in value year-on-year by 62.58% to 9.15 billion baht, of which 7.5 billion was ordinary premiums, 602.1 million industrial policies, 697.5 million group coverage and 350.6 million baht personal accident insurance.

Some 686,480 new policies signed in the first half, adding to the 7,375,916 in place at the end of 1999. Total premiums - new and renewals - rose 21.2% to 34.56 billion baht in the first half. Of the figure, 28.53 billion was ordinary premiums, 3.7 billion industrial, 1.54 billion group policies and 778.5 million personal accident policies, according to the Thai Life Assurance Association.

The industry recorded 28% growth in new business in 1999, compared with a 22% contraction in 1998, and was on track for 30% growth in 2000.

The industry had forecast earlier that the total premiums from life insurance would expand by 13% this year, about the same rate as last year.

Among key factors contributing to the revival this year are attractive returns and a wider choice of policies resulting from stiff competition. Several insurance companies started fully-fledged operations this year after testing the market for a couple of years.

More joint ventures

A number of multinational insurance companies have teamed up with mostly new Thai counterparts wanting to establish themselves fast in the industry.

Some Thai companies have remained locally-owned as they need no expertise and financial support from abroad, such as Thai Life Insurance Co and Ocean Life Insurance Co.

Many more joint ventures are expected soon as firms try to strengthen their presence. While new operators seek foreign partners, old players have launched aggressive marketing plans to capture the biggest share possible in the market, worth 70 billion baht in premiums this year.

Some of the new firms will have to withstand high initial operating costs until they can break even in three to five years, according to Apirak Thaipattanakul, the former president of the Thai Life Assurance Association.

According to the association, almost 90% of the market shares is controlled by five of the 25 companies. The intense competition, however, will benefit customers because there more new products will come on the market. Only about 11% of Thais are insured compared with 80% in Japan and 70% in Hong Kong.

The turnaround in the industry has helped employment. The Insurance Department said that the number of licensed sales agents had increased by 21% to 184,400 in 1998 and was on track for 200,000 by the end of 2000.

Non-life sector slow

In contrast to the life insurance market, the non-life sector is likely to show little growth in all products in 200, except compulsory auto insurance, according to Thai Reinsurance Plc.

The company forecast that total premiums from non-life coverage will be 50.32 billion baht by end of 2000, some 10.09% more than in 1999.

Premiums for 2001 are expected to grow 7% to 53.69 billion baht, with 8.73 billion from fire insurance, 2.47 billion from marine coverage and 10.69 billion from miscellaneous policies.

Auto insurance premiums from voluntary policies will likely rise 3% to 23.43 billion baht while premiums from compulsory insurance will probably increase 14% to 8.38 billion baht.

Public concern about the economy next year, combined with rising fuel prices and compulsory insurance, will slow growth in voluntary coverage.

The Insurance Department and General Life Insurance Association hope that a new voluntary insurance plan introduced last April will encourage the purchase of comprehensive or first-class auto insurance in addition to promoting good driving that will reduce insurance claims.

Based on the principle that good drivers should pay less, the new programme was designed to ensure fairness to motorists and encourage them to drive more carefully. Premiums will vary depending on the drivers' ages, car models and engine capacities. Discounts are also offered based on the ages of the drivers in addition to premium discounts of between 20-50% already offered to drivers with good records.

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