Insurance & Reinsurance 2021

Last Updated January 19, 2021

Thailand

Law and Practice

Authors



Baker McKenzie is one of the largest global law firms in Thailand, and the go-to firm for leading Thai, Fortune 500 and Asia Pacific 100 companies doing business in Thailand. The firm provides full legal services in the following areas: banking and finance, including fintech; capital markets; corporate/M&A; dispute resolution; employment; healthcare; insurance; intellectual property; projects and energy; real estate; hotel, resort and property development; restructuring and insolvency; tax and customs; technology, media and telecommunications; and trade and commerce. The firm's Bangkok team consists of 61 partners and 250 legal professionals, as well as 250 support staff, who work closely with colleagues across the firm's offices in Asia Pacific and the rest of the world to aid clients in a complex environment and succeed in an increasingly demanding market.

Insurance companies in Thailand are governed by three main pieces of legislation:

  • the Civil and Commercial Code (CCC);
  • the Life Insurance Act, B.E. 2535, as amended (the "Life Insurance Act"); and
  • the Non-Life Insurance Act B.E. 2535, as amended (the "Non-Life Insurance Act").

The reinsurance businesses in Thailand is generally divided into the life and non-life reinsurance businesses.

The life reinsurance business is primarily governed by the Life Insurance Act and subordinate Notification of the Office of the Insurance Commission (OIC) re: Rules, Procedures, and Conditions for Carrying on the Reinsurance of Life Insurance Companies, B.E. 2561 (2018). Similarly, the non-life reinsurance business is primarily governed by the Non-Life Insurance Act and subordinate Notification of the OIC re: Rules, Procedures, and Conditions for Carrying on the Reinsurance of Non-Life Insurance Companies, B.E. 2561 (2018).

The insurance industry in Thailand is currently regulated and supervised by the OIC, an independent regulatory organisation handling day-to-day insurance industry affairs and reporting to the Ministry of Finance (MOF).

In principle, an insurance company wishing to conduct the insurance business or reinsurance business in Thailand must be a licensed insurance company in Thailand, with separate licences for life and non-life insurance products. Non-life insurance products include fire, marine and transportation, motor and other types of insurance.

Both life and non-life insurers can underwrite health insurance products. However, life insurers cannot underwrite health insurance products as standalone products (the must be underwritten in a rider or endorsement).

Corporate Income Tax

Premiums for life insurance and non-life insurance are considered taxable income by insurance companies and, therefore, will be included when calculating net profits for corporate income tax purposes. Net profits (ie, taxable income minus deductible expenses) are subject to corporate income tax at 20%.

Insurance companies are required to comply with tax laws and regulations when calculating net profits for corporate income tax purposes. For example, reserve of not exceeding 65% of life insurance premium received in the accounting period (less premium paid for re-insurance) may be treated as deductible as expenses for corporate income tax purposes, and a reserve not exceeding 40% of non-life insurance premium received in the accounting period (less premium paid for re-insurance) may be treated as deductible as expenses for corporate income tax purposes. Reserves for non-life insurance shall be included as taxable income in the next accounting period.

Value-Added Tax (VAT)

Non-life insurance business is considered as a provision of services and is subject to VAT at 7% (inclusive of municipal tax). Non-life insurance premiums (including health insurance premiums), plus the stamp duty amount received from the customers, is included as a VAT base for VAT purposes.

Specific Business Tax (SBT)

Life insurance business (including personal accident insurance) is a business subject to SBT at 2.75% (inclusive of municipal tax) and thus not subject to VAT. The tax bases for life insurance businesses are interest, fees and service fees. Please note that life insurance premium is not included as the tax base for SBT purposes.

Stamp Duty

Non-life insurance policies are subject to stamp duty of 0.4% of the insurance premium. Life insurance policies are subject to stamp duty at 0.05% of the insured amount (capped at THB20).

Insurance Premium Paid by Individuals

Under Thai domestic tax law, life insurance premiums paid by individuals are deductible as expenses and allowances in amounts not exceeding THB100,000, provided that certain conditions are met.

Non-life insurance premium paid by a taxpayer for health insurance paid from 1 January 2020 is deductible in the actual amount not exceeding THB25,000 for personal income tax purposes, provided that certain conditions are met. The maximum annual deduction for the combined health insurance premium and life insurance premium is THB100,000.

In addition to the above deduction, life insurance premium paid for pension life insurance is also deductible up to 15% of taxable income but not exceeding THB200,000 for personal income tax purposes, provided that certain conditions are met. If the taxpayer also contributes to the provident fund, super saving fund, government pension fund, or retirement mutual fund, the total amount inclusive of life insurance premium paid for pension life insurance must not exceed THB500,000 in one same tax year.

Apart from the above, non-life insurance premium paid by a taxpayer for health insurance insuring their parents or their spouse’s parents is deductible in the actual amount not exceeding THB15,000 for personal income tax purposes, provided that certain conditions are met.

Insurance Premium Paid by a Company or Juristic Person Incorporated in Thailand

Life insurance premiums paid by a Thai company for all of its directors and employees, pursuant to general regulations and resolutions of the company for the benefits of the company, are considered expenses specifically for the business and is deductible as expenses for corporate income tax purposes. Each director and employee is required to include such life insurance premium as taxable income for personal income tax purposes. However, each director and employee can use the receipt issued by the carrier as an evidence for personal income tax deductions in the year the premium is paid.

Life insurance premiums paid by a Thai company for its shareholders or family members of its employees are considered personal expenses or gifts, and not specifically for the business. Therefore, the company is not entitled to deduct the premiums as expenses for corporate income tax purposes.

Non-life insurance premiums paid by a Thai company to insure the property owned by the company are considered expenses specifically for the business and are deductible as expenses for corporate income tax purposes.

Thai laws do not expressly prohibit Thai residents from purchasing insurance from overseas insurers. However, this should purely be the customer's decision, as overseas insurers cannot conduct the insurance business in Thailand without the required licences. However, an offshore reinsurer may enter a reinsurance agreement with a licensed local insurer through a licensed local reinsurance broker. The reinsurance arrangement would be subject to requirements under the reinsurance regulations.

There are no specific regulatory requirements governing fronting arrangements in Thailand, therefore, this would depend on the structure of the arrangement. Ceding a percentage of the local insurers to offshore reinsurers would be limited under the reinsurance regulations described in 1.1 Sources of Insurance and Reinsurance Law.

Currently, the OIC has not granted any new insurance licences since 1995. A new player wishing to enter the Thai insurance market would have to either partner with or acquire existing licensed insurers. To that end, there have been a few M&A transactions within the insurance industry in Thailand in recent years.

Having said that, the OIC is quite supportive of M&A between licensed insurers in Thailand, as the OIC believes that this will strengthen business performance, solvency ratios and compliance with laws and regulations. The new capital requirement (RBC II) could force smaller insurers to consolidate with bigger ones. In addition, the MOF has published a regulation which allows local licensed insurers to apply to become 100% foreign-owned, so as to promote foreign investment.

Agents, brokers, and bancassurance are currently the key distribution channels in Thailand. The OIC categorises distribution channels into:

  • sales via the insurer's employees, an insurance agent, or insurance broker;
  • sales via a bank (bancassurance);
  • sales via telephone (telesales);
  • sales via direct mail;
  • electronic sales; and
  • others.

Insurance intermediaries in Thailand can be classified into agents and brokers. Both types must be licensed by the OIC and are required to take an exam. An insurance agent must be an individual who is domiciled in Thailand, while an insurance broker can be either an individual or a corporate entity. In general, an insurance agent must represent one insurance company exclusively.

An insurance agent may represent another insurance company, with consent from the insurance company it is already representing. However, unlike the insurance agent, the insurance broker must be independent from the insurance company.

Bancassurance partnerships are generally divided into exclusive, preferred-partner, and conventional (whereby the bank will distribute a variety of insurers' products without preferential treatment) arrangements.

Generally, the insured is required to disclose important facts which would have induced the insurer to raise premiums or to refuse to enter contracts. The insured has utmost good faith obligation, meaning that they must also not make false statements.

If the insured does not do so, the contract may be voidable, and the insurer may exercise its right to declare the voidance of the contract within one month from becoming aware of these circumstances, or within five years from the date of the contract. However, the insurer must be prudent in looking for circumstances which would have raised premiums or prevented entry into a contract, as may be expected from a person or ordinary prudence. If the insurer fails to do so, the contract would still be valid.

The contract may be voided, as mentioned in 6.1 Obligations of the Insured and Insurer.

This would depend whether the intermediary is an agent or broker. In principle, the agent must act on behalf of the insurers, while the broker must act on behalf of the customers. The bank would also be considered a broker under a bancassurance arrangement.

The obligations vary based on the requirements under the sale notifications. Generally, the key obligations would be in relation to providing sufficient information, providing the details of insurers, explaining the results and consequences of the insurance application, and taking steps not to disturb customers or provide misleading information. The concept of fair treatment and suitability of customers were also introduced in the recent sale notifications.

Under the CCC, an "insurance contract" is a contract in which a person agrees to make compensation or to pay a sum of money in case of contingent loss or any other future event specified in the contract, and another person agrees to pay a sum of money, called a premium.

Please note that "loss" includes any injury which may be estimated in monetary terms. In light of the above, an insurance contract must include:

  • who the parties are, including an insurer who agrees to pay compensation, and the insured who agrees to pay a premium;
  • the insurer agreeing to pay compensation (which could include a swap or replacement) or a sum of money when there is a contingent loss or other future event, as specified; and
  • a defined premium in consideration for the risk borne by the insurer.

To be enforceable, an insurance contract must be made in writing and signed by the party liable or agent, with the following details:

  • the subject of the insurance;
  • the risk taken by the insurer;
  • the value of the insurable interest, if that has been fixed;
  • the sum insured;
  • the amount of the premium and how it will be paid;
  • the commencement and ending of the insurance if its period has been fixed;
  • the name or trade name of the insurer;
  • the name or trade name of the insured;
  • the name of the beneficiary, if any;
  • the date of the insurance contract; and
  • where and when the policy was entered.

Parties are not named as insured (such as tenants, subcontractors, or mortgagors) are allowed to be beneficiaries of an insurance contract. As the beneficiaries, such parties are not required to have insurable interest.

Insurance contracts are categorised as consumer contracts under the Unfair Contract Terms Act, B.E. 2540 (1997). In addition, the insurance contracts must be approved by the OIC, pursuant to the Life Insurance Act or Non-Life Insurance Act, as the case may be.

However, reinsurance contracts are not considered consumer contracts due to their business-to-business nature. Also, reinsurance contract are not required to seek the OIC approval, provided that it complies with reinsurance regulations described in 1.1 Sources of Insurance and Reinsurance Law.

Unit-linked and warranty and indemnity insurance products are considered insurance products in Thailand, subject to OIC approval. The OIC regulates unit-linked products, along with the Security Exchange Commission (SEC). The number of available warranty and indemnity products remains quite limited due to the complexity and nature of the products.

Whether the foreign ART transaction will be treated as reinsurance contracts in Thailand would depend on nature and details of the specific ART transaction. However, the general rule is that offshore insurance products cannot be sold in Thailand. The insurance products which can be sold in Thailand must be underwritten by licensed insurers in Thailand and they must also be approved by the OIC.

Foreign reinsurers may enter into reinsurance arrangement with Thai local insurers through local licensed reinsurance brokers. The reinsurance transaction is also regulated by the reinsurance regulations which prescribe key requirements that local licensed insurers must comply with including onshore and offshore reinsurance limit and credit ratings of reinsurers. The reinsurance regulations also prohibit local insurers from entering into certain financial and finite reinsurance arrangements.

In principle, insurance contracts are interpreted in the same way as other contracts, however, the OIC would take an active role in investigating claims initiated by insured parties. Relevant evidence and the details of circumstances would generally be taken into consideration.

All insurance policies must, in principle, be approved by the OIC, to which end the OIC also publishes a number of standard forms which requires insurers to follow. The terms and conditions of each insurance policy would depend on type of insurance. Once the policy has been approved by the OIC, the insurers are allowed to strictly follow the approved version and, therefore, there is no flexibility for negotiating commercial terms such as warranties with the insureds.

Conditions precedent to the insurer's liability would depend on type of insurance. As mentioned in 8.2 Warranties, all insurance policies must be approved by the OIC and, once approved, insurers are required to use the approved version with the customers.

When the OIC considers the policy application, legal principles in relation to insurance contract would also be taken into account. For example, in the case of life insurance, the CCC stipulates that insurers shall not be liable to pay compensation in case of the insured's death if the insured willingly commits suicide within one year from the date of the contract. For non-life insurance, the CCC stipulates that the insurer is not liable if the loss or other event specified in the contract is caused by the bad faith or the gross negligence of the insured or the beneficiary.

Generally, insurance disputes are addressed like disputes under other contracts. In addition to arbitration (which is an alternative dispute resolution (ADR) for other kinds of contract as well), insurance disputes can be settled by a mediation process hosted by the OIC, but this is limited only to disputes under ordinary insurance contracts, not reinsurance contracts.

The limitation period for the insured to claim for benefits under insurance contracts is ten years for claims under life insurance contracts and two years for claim under non-life insurance and reinsurance contracts.

In principle, only an insured will receive benefits under insurance contracts if a beneficiary has not yet been named. Nevertheless, heirs of the insured may claim such benefits by virtue of the law of succession.

The dispute case relating to insurance products could be considered a consumer case within the jurisdiction of consumer court. The consumer court tends to give preference to the insureds on the ground of legal presumption that the insureds are a damaged person and at a disadvantage. However, the court will decide the case based on merit of the case and evidence presented before it.

A foreigner can file a lawsuit or can be sued in a Thai court, even if the foreign defendant is not domiciled within the Kingdom of Thailand. If a foreign defendant does not have domicile in Thailand, the plaintiff can submit a lawsuit to the court which has jurisdiction over the plaintiff's domicile.

The parties’ choice of foreign law as the law applicable to their contractual relationship is generally recognised and given effect by Thai courts, unless the application of the foreign law is contrary to the public order and good morals of Thai citizens. The party wishing to rely on the application of foreign law has the burden to show how the foreign law will be applied to the satisfaction of Thai court. In practice, this can be done through the testimony of a foreign law expert, law professor, or practitioner, supported by foreign court judgments and precedents.

The courts of justice are divided into three tiers: the Supreme Court, the courts of appeals, and the courts of first instance. There are separate juvenile, labour, and tax courts, as well as specialised courts such as the Central and Regional Intellectual Property and International Trade Courts and the Central Bankruptcy Court. All these courts were created under their own enacting legislation, which also established their specialised procedures.

The constitution established a separate system of administrative courts to deal with administrative law and administrative contract matters. The Constitutional Court was also established to deal with governmental matters and constitutional questions. The military courts were established to try and adjudicate military criminal cases and other cases, as provided by law.

Commencing Civil Proceedings and Witness

All cases are heard and decided by professional judges, as there are no juries in the Thai legal system. A civil proceeding is commenced by a plaintiff submitting a complaint to a court of first instance within a competent jurisdiction. Court officers then serve the claim to the named defendants.

The defendants who properly receive the service are required to submit answers to the claim within a limited period. Each party then presents their respective witnesses to testify in court. Parties are typically permitted to submit written witness statements in lieu of direct testimony seven days before the hearing date. A witness will be cross-examined by the lawyer of the opposite party, followed by a re-examination by the lawyer who adduced the witness.

Closing Statements

Upon completion of the witness examination, each party may submit a closing statement in writing to the court. A judgment will be made within one or two months after that. A party who disagrees with the judgment of the lower court may appeal the judgment to a court in a higher level. Since 1 October 2016, an appeal from the court of appeal to the Supreme Court has required the express permission of the Supreme Court, a motion for which must be submitted to the Supreme Court along with the grounds for the appeal. If the Supreme Court refuses that permission, the court of appeal’s decision will be final as of the date it was handed down.

A judgment rendered by a foreign court will not be directly recognised or enforced in a Thai court. Thailand does not have any bilateral or multilateral treaties with any country for the recognition and enforcement of foreign judgments. A party who has obtained a foreign court judgment which it wishes to enforce against the defendant in Thailand must start new proceedings in a competent Thai court. The foreign court judgment may be submitted to the Thai court as evidence, or as supportive evidence for the interpretation and application of the governing foreign law as chosen by the parties in their contract.

Arbitration is available as a means of dispute settlement. Under the Arbitration Act, B.E. 2545 (2002), written agreements to arbitrate a dispute are given binding effect by the courts of justice or administrative courts, depending on the nature of the dispute. Parties to an agreement may agree that certain types of disputes should be resolved by arbitration.

Should a dispute arise, and one party brings the matter to court, the other party has the right to object. If this is the case, the court will refuse to hear the case and will order the parties to resolve the dispute via arbitration, in-keeping with the terms of the agreement. Arbitration clauses in commercial insurance and reinsurance contracts can be enforced.

Thai courts generally recognise and enforce arbitration awards, whether they are made in Thailand or elsewhere, if the parties involved are entitled to rely on the terms of relevant international conventions to which Thailand is a party. At present, this includes the Convention on Recognition and Enforcement of Foreign Arbitral Awards 1958 (the New York Convention 1958), and the Convention on the Execution of Foreign Arbitral Awards 1927 (the Geneva Convention 1927).

To enforce an arbitration award, the petitioner must submit the original agreement and the award, or certified copies of the originals, along with Thai translations, as evidence. The petition for enforcement of the awards must be submitted to the competent court within three years after the awards become enforceable.

Alternative dispute resolution by meditation and arbitration is recognised by the OIC. When a dispute arises, an insured party may request that the matter be resolved by arbitration. During the arbitration process, the insurer will then be required to submit a defense along with details and supporting documents. Before appointing an arbitrator, the parties may mediate to settle the case. If the dispute cannot be mediated, the OIC or an arbitration institution recognised by the OIC will schedule a meeting with the parties in order to appoint arbitrators to further resolve the case.

The late payment of claims could result in insurers being subject to a fine of up to THB500,000 and a further daily fine of THB20,000 for as long as the violation continues.

Generally, if the loss is caused by the act of a third party, the insurer who pays compensation is subrogated, up to the amount paid by them, to the rights of the insured and of the beneficiary against such third party. If the insurer has only paid part of the compensation, they cannot exercise their rights so as to prejudice the right of the insured or of the beneficiary to claim the remainder of the loss from the third party.

Due to the COVID-19pandemic, it is foreseen that insurtech will play a crucial role in supporting insurers in modernising and transforming their business. Insurance players will pay more attention to insurtech solutions for their business model and growth strategy and traditional tech startups could focus more on insurtech, which will simultaneously increase the number of players in the market. However, the Thai insurance industry still needs more insurtech firms for it to truly become a game changer. At the same time, insurers that are keen on technology and new opportunities could potentially build their own insurtech, or acquire existing insurtech as a shortcut.

The opportunities in Thailand are strong, a familiarity with technology providing a solid foundation for insurtech services to be transmitted to eager potential customers. Furthermore, there are not many insurtech players in the market, giving plenty of opportunity for new firms to enter the market when demand is high. Lastly, the OIC has explicitly expressed their support for digital insurance and insurtech, issuing new regulations to facilitate the use of technology, including online sales, regulatory sandboxes, and investment by insurers in insurtech firms. Looking forward, it is expected that the OIC will continue to support insurtech.

In July 2017, the OIC established a regulatory sandbox to enable insurers, agents, and fintech and insurtech players to test their innovations.

In 2019, the OIC amended the sandbox scheme. Regarding eligibility, fintech and technology firms no longer need to partner with insurance companies to participate in the sandbox. Furthermore, more types of transactions were deemed eligible, allowing more flexibility for applicants to enter the sandbox scheme. Lastly, the 2017 regime only allowed a one-year implementation period (although this was extendable). Under the new regime, the OIC has discretion to determine the implementation period based on the needs of each project, and may extend the period if they deem it appropriate.

Given the rapid digital transformation in the Thai insurance industry, the OIC has been active in issuing new regulations to ensure that the insurers have sufficient resources and appropriate systems to deal with the associated risks. A new risk management regulation was announced in 2018, and a specific regulation governing risk management for information technology for insurers was introduced in 2019.

Cyber-insurance is now available, along with other solutions such as software systems developed by insurtech firms. However, as Thailand still lags behind some other countries, it remains to be seen whether insurtech firms in Thailand will be able to offer alternatives or solutions in the near future.

COVID-19 has forced both the OIC and the insurers to adapt quickly. The OIC has a number of initiatives that facilitate insurers' business operations and ensure that Thai residents are well-protected from risks associated with the virus. For example, the OIC has initiated a fast-track application scheme for product filing approval for policies covering risks relating to COVID-19. Accident, health, life, travel, and unemployment (in case of employment termination or business dissolution) insurance policies sold before 17 March 2020 cover risks relating to COVID-19 unless the policyholder:

  • was infected with the virus before purchasing the policy; or
  • had contracted the virus during the wait period.

In addition, the OIC has announced regulations which allow the offering of insurance products for sale via electronic methods with video or voice communication for all types of insurance products, except for unit-linked and universal life insurance products.

Digital Licence

Moving towards digital insurance is one of the goals enshrined in the Insurance Development Plan No 3 (2016-20), which aims to elevate the Thai insurance industry's standard to an international level. The OIC is therefore contemplating issuing insurance licences for the first time in over 20 years. This time, however, the OIC will issue digital licences. The OIC has dedicated a task force to study digital insurance licensing in Hong Kong. Recent reports indicate that the OIC may issue both visual licences (for new entrants wishing to sell insurance digitally without a commission), and digital licences (to existing insurers who wish to switch to purely digital sales).

Wider Investment Options

The fourth amendment to the investment regulations has provided wider investment opportunities, including in medical services, care services for the elderly and long-term care services, and technology that is beneficial to the insurance business (insurtech).

Draft Insurance Development Plan No 4

Insurance development plans play an important role in driving the Thai insurance sector forward. Recently, the OIC published the draft Insurance Development Plan No 4 (2021-25), which aims to build public trust and confidence in the insurance sector in order to cope with rapid changes in the economic and technological landscape. The theme of this plan is "balance and sustainability", focusing on three main issues:

  • ensuring sustainable development by supporting and developing every sector of the insurance economy, from the insured and insurers to insurance agents and brokers;
  • creating balance by only issuing regulations as necessary to promote the insurance industry in accordance with changes to technology, laws and regulations, and economic and social development to increase the industry’s competitiveness and flexibility; and
  • supporting the use of data and technology by promoting a central insurance industry database, and using technology to make products that meet the expectations of customers, the economy, society, laws, and culture, which change over time, and mitigating the risks in and costs of operations.
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Trends and Developments


Authors



Baker McKenzie is one of the largest global law firms in Thailand, and the go-to firm for leading Thai, Fortune 500 and Asia Pacific 100 companies doing business in Thailand. The firm provides full legal services in the following areas: banking and finance, including fintech; capital markets; corporate/M&A; dispute resolution; employment; healthcare; insurance; intellectual property; projects and energy; real estate; hotel, resort and property development; restructuring and insolvency; tax and customs; technology, media and telecommunications; and trade and commerce. The firm's Bangkok team consists of 61 partners and 250 legal professionals, as well as 250 support staff, who work closely with colleagues across the firm's offices in Asia Pacific and the rest of the world to aid clients in a complex environment and succeed in an increasingly demanding market.

Introduction

The COVID-19 pandemic has forced insurers to rethink their businesses, and proactively change how they are run. The pandemic has exposed new and greater risks, resulting in more challenging risk assessment processes for the insurance business. Following on from this, the pandemic has reinforced the need to expand into online distribution while also maintaining traditional channels for long-standing clients.

Competition in the Thai insurance industry has intensified, particularly given the challenge posed by the economic slowdown and low interest rates, which has pushed insurers into adopting more aggressive investment strategies in the search for better results. On this front, regulations have allowed insurers to pursue more investment alternatives such as, offshore investments, fund management, investment in healthcare, etc.

Nonetheless, although the current risk-based capital (RBC2) rule additionally recognises subordinated debt as total capital available (TCA), the more stringent capital treatment could mean that some insurers, particularly small operators, will find it difficult to maintain the required capital. On personal data protection, insurers are relieved that the enforceability of the Personal Data Protection Act has been postponed until May 2021, allowing them time to comply with the many obligations introduced by the legislation.

Draft of the fourth five-year insurance development plan (2021-25) has been announced. Its central theme is promoting digital insurance and strengthening the Thai insurance industry, which are to be achieved through enhancing the insurance ecosystem and relaxing certain regulations to facilitate business competition and expansion. This fourth development plan marks Thailand’s first step in moving towards a full digitisation of the insurance business.

Overview of the Life Insurance Industry

It is not yet clear how the Thai insurance industry has fared during the pandemic since the figures for 2020 have yet to be announced. In 2019, Thailand’s life insurance industry shrunk by 2.62% (compared to 2018), with total collected premiums of THB610,914.11 million. The contraction was mainly caused by external factors such as low interest rates; changes in consumer behaviour; an economic slowdown; political uncertainty; and the new market conduct requirements recently issued by the Office of the Insurance Commission (OIC).

Despite the economic and political uncertainties, the Thai life insurance market has been more concentrated from a number of M&A in the past few years. Though the market is more concentrated, life insurers have rolled out customised and innovative products to meet customer demands and boost sales. In recent years, insurers are more focused on health insurance products and investment/protection insurance products, while reducing sales of saving insurance products with guaranteed returns due to low interest rate.

In addition to domestic M&A, several life insurers are seeking local partners to expand their businesses to other Southeast Asian countries, such as Myanmar, Indonesia, and the Philippines.

Most insurance sales are still conducted by agents and through bancassurance. However, technology and online channels have grown in significance since 2018. A number of life insurers have launched mobile applications or partnered with corporate brokers to sell products online. Certain major players have also invested in developing insurtech and digital technologies.

Overview of the Non-life Insurance Industry

In 2019, Thailand’s non-life insurance industry grew by 5.2% compared to 2018, with motor insurance having the largest share (premiums collected representing 59% of the total direct non-life insurance premiums). Numbers for 2020 have not yet been announced. Looking towards 2021, the OIC forecasts growth in the range of -0.36% to 1.64% due to lower purchasing power, as a result of higher household debt.

Despite the more concentrated non-life insurance market, due to consolidations of non-life insurers through M&A, the market remains highly competitive with the top 15 of nearly 60 non-life insurers in Thailand have an aggregate market share of approximately 74% (based on direct premiums).

With the newly introduced RBC2 in 2020, it remains to be seen whether any small non-life insurers would falter to the more stringent capital maintenance standards. If so, more M&A and fundraising could be expected in the coming year.

As with the life insurance market, the COVID-19 pandemic underlines the need for immediate digital transformation of non-life insurers.

Key Market Update

Potential insurance digital licences

After 20 years since the last insurance licence was issued, the OIC now contemplates issuing fresh licences, which may be digital. Recent reports suggest that the OIC may issue both visual licences (for new entrants wishing to sell insurance digitally without intermediary), and digital licences (for existing insurers wishing to switch to digital sales only). This development is under the study of the regulator and this initiative might take some time before implementation.

Future health insurance act

Thailand has specific statutes addressing life insurance, non-life insurance, and motor vehicle accident victim protection, but not a health insurance statute. The current situation is that the number of old people are increasing and Thailand will become an aged society by 2021. By 2037, the proportion of old people will be up to 30% of all population (source: the Ministry of Social Development and Human Security).

With an aim of increasing consumer protection and its supervisory authority in the health insurance industry and encouraging improvement in public health, the OIC has launched studies on specific health insurance statutes. To pass a health insurance act, the OIC will have to propose a draft act for the parliament’s approval. The act may address a number of issues from consumer protection to national health services.

Insurance Development Plan No 4

The OIC has announced the draft Insurance Development Plan (No 4) (2021-25) for public hearing, which will be the fourth development plan the OIC has issued since 2006. The plan is to be aligned with the Thai financial institution system and capital market development plans to ensure that the Thai financial sector can be a driver of government policies.

Under the fourth development plan, the OIC aims to support the Thai insurance industry in using technological resources to efficiently manage risks. The plan also focuses on the protection of customers’ rights and benefits, and the promotion of the Thai insurance industry to compete on a global scale. Particularly, the plan aims to facilitate insurance players in expanding their investment base worldwide, while ensuring that Thai residents have access to insurance. The OIC believes that the attainment of these objectives will lead to a sustainable growth of the insurance industry.

M&A Movements

2020 has been a relatively active year for M&A in the insurance sector. FWD Group acquired the insurance unit of Siam Commercial Bank, SCB Life Assurance Public Company Limited, and entered into a 15-year bancassurance arrangement with SCB Life in September 2019. The bancassurance arrangement secures FWD’s right to distributing their life insurance through SCB, Thailand's first indigenous bank established in 1906. The transaction is Southeast Asia’s largest insurance M&A transaction to date. The two companies completed their amalgamation on 1 October 2020, marking Thailand's first business amalgamation in the life insurance sector. Following its acquisition of SCB Life, FWD Group also acquired Siam City Insurance Public Company Limited which marked its very first general insurance proposition in Thailand.

In the non-life insurance sector, Tokio Marine Insurance (Thailand) PCL fully integrated its business with Safety Insurance Public Company Limited to form Tokio Marine Safety Insurance (Thailand) Public Company Limited in February 2020. The integration follows on from Tokio Marine’s acquisition of Safety, a market leader in motor insurance, in 2018.

Opportunity to Increase Foreign Shareholding

Foreign companies wishing to hold more than 25% shares in a Thailand-based insurer must first get approval from the OIC, or the Finance Minister. One of the conditions for getting this approval is to demonstrate how the foreign shareholder can transfer technology and know-how to the Thai insurer, or contribute towards making the Thai insurer more financially stable. For the financial stability justification, the COVID-19 pandemic may prove to be an opportunity for foreign shareholders to increase their shareholdings in Thai insurers.

Under the current Non-Life Insurance Act and the Life Insurance Act, insurance companies in Thailand can increase their foreign shareholding ratio to more than 25% and to increase the ratio of foreign directorship with:

  • an approval from the OIC for foreign shareholding of more than 25% but not exceeding 49% and the number of foreign directors to equal one-quarter but less than half of the total directors; or       
  • an approval from the Minister of Finance for foreign shareholding of more than 49% and up to 100% and the number of foreign directors to be more than half of the total directors

Better Regulations to Support Insurtech

Insurance regulatory sandbox

The sandbox regime was first introduced in May 2017. In 2020, the OIC made changes to the criteria for the sandbox to better suit Thailand’s insurtech ecosystem. Some key changes are the following.

  • Eligible applicants –fintech firms and technology firms are no longer required to partner with insurance companies to participate in the sandbox.
  • Eligible transactions – the term "eligible transactions" has been more broadly defined under the new regime, allowing more flexibility for applicants to enter into the sandbox scheme.
  • Implementation period – the 2017 regime only allowed a one-year implementation period (although this was extendable). Under the new regime, the OIC has discretion to determine the implementation period based on the needs of each project, and may extend the period if it deems it appropriate.
  • Own sandbox – in addition to the conventional regulatory sandbox, which is regulated by the OIC, successful applicants are now allowed to create their own sandbox. In the applicant’s own sandbox, the applicant can implement their initiatives without close supervision of the OIC. Nonetheless, these transactions will still have to meet certain criteria, such as (i) being transactions which have been tested in the insurance sandbox scheme or (ii) must not negatively affect the customers or stability of or confidence in insurance companies or insurance industry. Furthermore, for the own sandbox scheme, the applicant may request from the OIC the relaxation or exemption of non-material requirements that it considers to be an obstacle to the test.

The OIC expects that the new sandbox regime will attract talented firms to equip the insurance industry with new innovations that will accelerate the Thai insurance sector’s digital environment.

Improving the regulations to drive digital transformation

The OIC recognises the importance of supporting the insurance sector in the digital age — in terms of products, access, services, and business efficiency — so that the sector can promptly respond to consumer needs and fierce competition. Conversely, insurance companies should strive to be trustworthy advisors for their customers, and to operate with a goal of improving people's quality of life and security. To allow insurers to fulfil their roles, the government should relax regulations to support, and strengthen risk management and consumer protection, focusing on these three aspects.

  • More use of technology – supporting the use of technology to offer products and services (digital face-to-face). Online services are easy and safe and meets the consumers' needs, in terms of convenience and speed. Vocal and visual signals, email, and applications are used throughout the process, which offers policies; confirmation; delivery of documents; premium payment; receiving protection via SMS and email; and other services including compensation payment.
  • Technology throughout the value chain – using technology in the value chain, such as using AI to develop products and services; determining premium rates using big data (risk-based pricing); and online application consideration, claims management, and pre and post sales services, including "robo advice" services. These will improve the accuracy, speed, and quality of services, and boost the efficiency of risk management and operational costs.
  • Consumer protection every step of the way – creating new levels of consumer protection, in accordance with digital technology (market conduct). Digital technology creates a new form of insurance business. The important aspect is fair treatment to customers. The business conduct must be adapted to the digital age and there must be a balance between innovation and possible risks.

One should gain an in-depth understanding about processes related to innovation, in order to properly assess and determine the guidelines for preventing and controlling risks. There should be a specific business code of conduct for digital insurance business. Moreover, as the insurance business is linked to many sectors, such as the securities business, the banking business, and the telecommunication business, the government entities should link up with standardised businesses, so that the development of digital business and the link among each sectors comply with laws and regulations. Consumer protection standards must also be applied.

OIC Gateway: new gateway to the insurance industry

To develop infrastructure for the Thai insurance industry, arrangements paving way for digital transformation is enlisted as the fourth strategy under the draft Insurance Development Plan No 4 (2021-25), which is expected to soon be promulgated. Among those arrangements, OIC Gateway, a regulator-operated online database for all insurance policies, is to be achieved within three years from 2021.

OIC Gateway is an online portal designed to be the main gateway for receiving detailed information on every insurance policy underwritten by any Thai licensed insurer. The Office of Insurance Commission (OIC) envisages that OIC Gateway will allow it access to insurance information of each insured, and use this data for the benefits of consumers and the insurance industry, such as creating a portal for the insureds to review all their insurance policies in a single window. The OIC has just issued orders nos. 12/2563 and 13/2563 (effective from 1 January 2021) obliging both life and non-life insurers to, on the OIC's request, immediately submit true and accurate detailed information of each insurance policy they underwrite via OIC Gateway. Examples of data that may be requested are name and address of the insured and policy number.

Conclusion

Despite an apparent need for digitalisation, full digitisation of Thai insurers and intermediaries can be slow given the regulator's supervision and caution. The challenge facing insurers and intermediaries would be, striking a balance between ensuring compliance with the extensive regulations (eg, having the necessary systems and internal checks) and incorporating innovations and technology into their operations. Nonetheless, the Insurance Development Plan (No 4) could mark a promising start to the regulator relaxing regulations and supporting insurers and intermediaries in their digitisation efforts.

Baker McKenzie

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Silom, Bang Rak
Bangkok 10500
Thailand

+66 26662824 ext. 4081

+66 263 62 111

Amnart.Pitakgorn@bakermckenzie.com www.bakermckenzie.com
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Law and Practice

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Baker McKenzie is one of the largest global law firms in Thailand, and the go-to firm for leading Thai, Fortune 500 and Asia Pacific 100 companies doing business in Thailand. The firm provides full legal services in the following areas: banking and finance, including fintech; capital markets; corporate/M&A; dispute resolution; employment; healthcare; insurance; intellectual property; projects and energy; real estate; hotel, resort and property development; restructuring and insolvency; tax and customs; technology, media and telecommunications; and trade and commerce. The firm's Bangkok team consists of 61 partners and 250 legal professionals, as well as 250 support staff, who work closely with colleagues across the firm's offices in Asia Pacific and the rest of the world to aid clients in a complex environment and succeed in an increasingly demanding market.

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Baker McKenzie is one of the largest global law firms in Thailand, and the go-to firm for leading Thai, Fortune 500 and Asia Pacific 100 companies doing business in Thailand. The firm provides full legal services in the following areas: banking and finance, including fintech; capital markets; corporate/M&A; dispute resolution; employment; healthcare; insurance; intellectual property; projects and energy; real estate; hotel, resort and property development; restructuring and insolvency; tax and customs; technology, media and telecommunications; and trade and commerce. The firm's Bangkok team consists of 61 partners and 250 legal professionals, as well as 250 support staff, who work closely with colleagues across the firm's offices in Asia Pacific and the rest of the world to aid clients in a complex environment and succeed in an increasingly demanding market.

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