It is an exciting time for the Thai insurance market. When we last spoke to Mr Ongartsittigul, the Kingdom had just weathered a period of “unprecedented political conflicts”, yet the insurance industry had managed to deliver a strong performance. Presently, the political situation is much stabilised, and the market continues to prove its resilience as it marches on to welcome the launch of the ASEAN Economic Community (AEC) at the end of this year.
With a cumulative average growth rate (CAGR) of 13%, total premiums of both life and general sectors that amounted to approximately US$23 billion, and a penetration rate of 6%, the regulator considers these to be “good numbers”. Not only do the numbers reflect the market’s solid base and growth potential, they also show the stages of the industry’s development over time, he said.
“Given the economy’s fluctuation and in-country political movements, 2014 was a difficult year to operate in, not only for the insurance industry, but all others as well. That the insurance market managed to outperform, it is as good as it gets.”
While he noted that the life sector has “built up a large and solid base for future growth” and that the life insurance association had projected a growth rate of 13%, Mr Ongartsittigul expects 2015 to remain challenging.
With growing public concern over insufficient healthcare coverage, the nation’s ageing population and longer life expectancies, the demand for insurance coverage is set to increase. As such, he noted that the quality of medical services must continue to improve, whilst the industry’s development of wellness programmes must strive to meet demands.
Meanwhile, expectation for the general sector’s growth – which is linked to GDP growth (4% in 2015 according to the Fiscal Policy Office) – is “twice the GDP growth rate”, he said. With the infrastructure projects ongoing, insurance companies have been expanding their presence in the designated special economic zones along the trading borders in Tak, Songkla, Mukdahard, Trad, Srakaew and Nongkai. Hence, the regulator expects that the positive impact of these developments will start to take shape between 3Q and 4Q of 2015.
“Public confidence and consumption will improve. Taking into consideration time lags, 3Q-4Q15 will serve as a spring board for 2016. The expectation of [the general sector’s] growth to be twice of GDP rate will continue, and by all means resume double-digit growth in 2016.”
On the regulatory front, Mr Ongartsittigul said the OIC is currently preparing for Phase 2 of its RBC framework where it recently had an industry-wide parallel run, “as a means to broadcast the revised methodology and to prepare the industry for it”. He noted that while majority of the companies “passed the test”, there are still “a handful which require attention”.
“The results have been presented to the OIC Board, and we will continue to approach the revision of the framework one step at a time. For example, we assumed a 95% level of confidence in our risk calculation this time; this will be gradually adjusted upward to reach 99.5%,” he said.
Investment options and consumer protection initiatives
Meanwhile, the OIC’s revisions on rules pertaining to insurers’ investment tools have gone ahead to allow the latter to invest in listed infrastructure funds and REITs through unit trust funds. The OIC’s proposal to expand investment instruments to cover bonds and secured loans has also been approved by the Board and is being actioned upon.
He added that the regulator is currently conducting an industry hearing on draft regulations aimed at introducing corporate governance and transparency clauses to laws, “removing certain lengthy texts” to improve clarity, and allowing the OIC Board to “prescribe rules and regulations that are in line with market practices and the IAIS’ ICPs – to empower the OIC to regulate a minimum amount of capital requirements, together with certain provisions aligned with the AEC commitment”.
AEC progress slow but surely
Turning to regional developments, namely the upcoming AEC launch – of which Thailand is a strong advocate – Mr Ongartsittigul acknowledged that there is much to reconcile and harmonise before the full AEC goals can be achieved as the 10-member countries’ economies are in varied stages of development. Nonetheless, with the World Bank and Asian Development Bank (ADB) lending a hand in this process, “progress is coming along, albeit more in some industries than others”, he said.
He said the OIC is playing an active role alongside the ASEAN Secretariat, World Bank and ADB, where it has been discussing “ways and means to move forward” at the Asian Insurance Regulators’ Meetings (AIRM). And it is “likely” that cooperation efforts could “start with bilateral or multilateral agreements”.
Adding that necessary assistance will be offered to those willing and ready to join, he said the approach could be a cross-border offering of simple and non-complex products through locally licensed market personnel. Roundtable discussions will also continue. “We have learnt from the experiences of other regions, and ultimately, the diversity of the people and differences in the stages of economies among member countries must be respected,” he said.
Still, the regulator noted that Thailand’s insurance market faces certain challenges which need to be resolved. For one, there remains a relatively large number of companies in both the life and general sectors (24 and 64, respectively). And of these numbers, just 20% of insurers account for 80% of business.
“The industry needs to be further strengthened in order to face the next level of competition and take advantage of the greater opportunities the AEC will bring. Product variety, efficiency ratios, digitization, capacity and personnel development are all issues that need to be looked at.”
Set to deliver stellar growth
Notwithstanding, the Thai insurance market is still on track to deliver stellar growth, what with huge market potential domestically and regionally when the AEC is up and running.
Keeping in mind a total AEC population of 625 million, a total GDP of US$2.4 trillion, along with economic growth rates among the highest in the world, the free flow of goods and services, labour, and freer flow of capital will bring about significant developments to the community – be they investor or investment destination, said Mr Ongartsittigul.
With such bright prospects, it is indeed an exciting time for Thailand’s insurance market.