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Life prospects: Old is gold

Source: Asia Insurance Review | Jun 2018

Thailand Life & Health Motor

The future is bright for insurers servicing Southeast Asia’s largest ageing population and their young.
By Dawn Sit 
Life insurance premiums in Thailand rose by 5.9% to THB602bn ($18.9bn) in 2017 on the back of rising affluence and awareness of financial services in an expanding middle class, a modest penetration rate at 3.89%, as well as a rapidly ageing population. In fact, it is against this greying demographic that German giant Allianz expects to see the sector grow by about 7% in 2018. 
   According to UN statistics, the number of people aged 65 and over in Thailand is set to double to 15.8m by 2035 owing to increasing life expectancy. This represents a jump in this age group from 16% of the population today to 36% in 2035, Allianz noted. 
   The climbing life expectancy, along with an inflationary trend in medical expenses and a relatively rudimentary social security framework, mean that demand for health insurance cover is only likely to grow since private insurers will be needed to step in to help bridge the health protection gap. In addition, in late 2017 the Thai government allowed policyholders to deduct up to THB15,000 per year from taxable income, subject to a cap of THB100,000 when combined with life insurance premiums. The tax rebate, though slight, still presents an incentive for locals to consider taking out additional cover.
   Thanks to a relatively stable economy and inflation – GDP growth has hovered around 3% and upwards in the last three years – Thailand’s population has enjoyed rising standards of living. Rating agency Fitch thus noted in a recent report that the life insurance market is likely to see “strong sales growth of unit-linked and annuity products” after recording a jump of 104% and 28% y-o-y respectively at the end of third quarter 2017. 
   The remarkable growth was attributed to the Thais’ concerns over their long-term personal finances amid a low-yield environment. Capital market observers, however, continue to remain optimistic for 2018, taking cues from positive macroeconomic performances in the latter half of 2017 and the US Federal Reserve’s decision to start raising interest rates. Whatever the outcome, insurers in Thailand are likely to benefit from a growing demand for unit-linked and annuity products as their customers seek ways to diversify their investment portfolios and plan for retirement.
New mortality table may cut both ways
Meanwhile, the Thai Life Assurance Association (TLAA) has forecast a market expansion range of 4-6% for 2018, to be driven by an estimated reduction of life premium costs between 5% and 30% after the regulator’s implementation of a new mortality table at the end of September 2017. The industry body thus expects to see cheaper life insurance premiums particularly for term life, whole life and credit life products.
   TLAA president Nusara Banyatpiyaphod said, “The first response of life insurance companies is to cut costs to increase efficiency.” However, if insurers are unable to “cancel out the impact from lower-cost premiums,” the attention could be directed towards reducing distribution and marketing expenses, which could take a toll on insurance sales and potentially dampen growth. A 
Motor business poised to break slump 
Of Thailand’s THB219.6bn ($6.9bn) non-life insurance market (as at 2016), the motor segment accounts for the lion’s share at 58% of market premiums and has always been relied on as an engine of growth. With an average loss ratio of 46.6% between 2014 and 2016, and despite the jump to 55% in 2017, according to Willis Towers Watson (WTW), the motor business in Thailand remains a relatively profitable line in insurers’ portfolios.
   In recent years, the Thai auto market shrank following the end of a first-car incentive scheme, and a period of general economic uncertainty, including the passing of the late King Bhumibol Adulyadej. This in turn led to a decline in motor insurance sales. 
   However, the tide appears to be turning as the Federation of Thai Industries (FTI) recently reported a pick-up – both in production and sales – in the kingdom’s automobile industry. After a 13.4% expansion in 2017 – the first annual increase in five years – the FTI has forecast domestic car sales of 900,000 in 2018. Earlier in March, local sales leapt by 12.1% to 95,082 cars, compared to the same period last year. 
   On the side of caution, while not yet official, there is a possibility that the government may deregulate motor insurance to encourage more competition. Nonetheless, “no major impact is expected in the short term as insurers are not allowed to compete over prices or underwriting criteria due to regulatory wording requirements”, said WTW.
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