Insuring the Emerging Masses: Thailand's Case

Insurance is one of those luxuries that mature economies take for granted. Yet insurance is a burgeoning industry in emerging markets now as their citizens get richer and desire the typical middle-class trappings. Thailand is one such market with low life and non-life insurance penetration among the population. Thailand possesses the second largest economy in the ASEAN region after Indonesia, with the industrial and service sectors dominating it. Thailand’s economy is heavily reliant on exports, constituting 67% of their USD329 billion economy. With a population of around 69 million people, they have the third lowest unemployment rate in the world at just 0.5% (after Monaco and Qatar). Furthermore the Thai economy seems buoyant this year, forecast to grow in a range of 5-6%. On the insurance front, Thailand has life insurance penetration of 2.7% (premium as % of GDP) (US$9.22 billion), whilst it has non-life insurance penetration of 1.7% (US$6.02 billion). Compare this to mature economies and one can smell the opportunity – Taiwan has life insurance penetration of 14% and 3.1% for non-life insurance penetration, whilst Japan has life insurance penetration of 8.8% and non-life insurance penetration of 2.2%.

Thai insurance penetration rates are exceptionally low, yet they also possess several factors that will enable rapid growth in the provision of insurance products. Thailand’s middle class is growing rapidly and life expectancy has increased markedly from an average of 69 years in 2000 to 74 years currently. Another demographic factor is the estimated 30% of the Thai population that will be over 60 years old by 2025. In addition, traumas such as the massive floods in 2011 and riots in 2010 has raised the need for insurance in the national consciousness. For example the floods were the fifth costliest insured loss event in the past 35 years with estimated losses of US$20 billion. Thailand is also being promoted by the World Bank as the insurance hub for ASEAN when the free trade area goes live in 2015 in order to facilitate development of insurance industries in neighbouring countries.

Unique Insurance Products in Emerging Markets

Looking forward, the life and non-life insurance markets are growing at around 20% year-on-year. In life insurance this growth is being driven by attractive tax benefits to incentivise savings, whilst growth in non-life insurance is driven by increased education of consumers and more focused distribution channels. Emergence of health insurance and pensions across Southeast Asia is a growth opportunity, one expedited by the global financial crisis. Over time, pension and retirement-related assets will become the largest source of wealth in the region. In this major growth area, competition among insurers is strong with many engaging in price discounting in order to get an edge. In other products, motor insurance premiums are expected to increase by 10% this year. Premiums for property insurance regarding flood cover have risen and many insurers are also simply refusing to cover floods. Demand for professional indemnity insurance is also increasing and more insurers are offering this product to meet demand. Additionally, workers’ compensation insurance is mandatory and managed/subsidized through a government program. The only real challenges for insurers currently are the possibility of lower interest rates in Thailand, which could hit demand for insurance products, and higher reinsurance costs. Many insurers in emerging markets have historically abstained from purchasing catastrophe reinsurance in order to maximize their retained premium. Yet, the apparent frequency and severity of catastrophes in the Asia-Pacific is increasing, prompting insurers to re-think their approach to reinsurance. One challenge insurers have to grapple with however is that as they try to target the growing middle-class they are unable to simply pass on the increased cost of reinsurance as affordability is a key factor in selling insurance to first-time buyers.

Thailand has historically had numerous smaller insurers, yet new insurance regulations raising the minimum capital requirements for insurers will be a major driver for consolidation. Coupled with strong growth prospects in the insurance industry as a whole, investing in the top Thai insurers would be good for one’s wallet. In the life insurance market, the top five insurers dominate 70% of the market, a concentration that is extremely high compared to Europe and the USA. The market leader is AIA with 20% followed by Muang Thai (16%), and SCB Life (14%). Meanwhile the non-life insurance market is more fragmented with the top five insurers controlling around 40% and a greater range of products and distribution channels allowing for more competition. Five high-growth non-life insurers to watch include:

Thai Insurers are avoiding flood cover

·         Bangkok Insurance has a market capitalization of THB30.27 billion, profit of THB928.67 million, revenue of THB9.58 billion, and 1211 employees. Its share price is currently THB396, up 64% from last year and 114% from five years ago. They engage primarily in providing non-life insurance including motor insurance, travel insurance, personal accident and health insurance, property insurance, third party liability, marine and cargo insurance, fire insurance, and reinsurance services for both domestic and overseas markets.

·         Dhipaya Insurance Public Company Limited has a market capitalization of THB12.53 billion, profit of THB641.12 million, and revenue of THB9.75 billion. Its share price is THB41.75 currently, up 90% from a year ago and 152% from five years ago. They primarily engage in the non-life insurance business providing motor insurance, marine and transportation insurance, health and cancer insurance, travel insurance, private and public property insurance, machinery insurance, aircraft insurance, insurance to cover void construction contracts, and burglary insurance.

·         Muang Thai Insurance has market capitalization of THB6.08 billion, profit of THB118.41 million, revenue of THB5.39 billion, and 780 employees. Its share price is currently THB104, up 43% from last year. They were incorporated in 2008 and currently market their products through the 830 retail branches of Kasikornbank and through various insurance agents and brokers. They are the number two provider of life insurance in Thailand. They are number seven on the non-life insurance side, engaging in providing property insurance, all risks insurance, terrorism insurance, insurance for SME, marine and air cargo insurance, fleet insurance, engineering and machinery insurance, personal accident and health insurance, motor insurance, gem and gold insurance, airplane insurance, and trademark insurance.

·         Syn Mun Kong Insurance has a market capitalization of THB 9.12 billion, profit of THB720.24 million, revenue of THB 8.13 billion, and 1802 employees. Its share price is around THB460 currently, up 76% from last year and 673% in the past five years. They engage mainly in the provision of non-life insurance with an emphasis on motor insurance, fire insurance for properties, marine and transport insurance, travel insurance, and health and personal accident insurance. They operate through 101 branches throughout the country.

·         Navakij Insurance, incorporated in 1933, had THB2.12 billion revenue in 2012 and THB220 million profit. They have 454 employees and 27 branches throughout Thailand. They principally engage in the provision of non-life insurance, including motor insurance, fire insurance, marine insurance and other insurances. They have a market capitalization of THB2.37 billion. Their share price is currently THB79, a 40% increase from last year. After scoring a THB104 million profit in Q1 2013, which is a 234% growth rate, Navakij insurance are reaping the benefits of their rapid expansion into new insurance products.