INSURANCE DEVELOPMENT PLAN Volume II ( )

Transcription

1 INSURANCE DEVELOPMENT PLAN Volume II ( ) 1

2 PREFACE The Insurance industry plays a significant role in the social and economic development of a nation, serving as a contributing source of long- term savings and guaranteed security of household and business assets. Insurance helps strengthen the country s commercial, industrial and agricultural sectors to a more solid foundation. However, statistical assessment and analysis reveal that at present the Thai population is not taking full advantage of the benefits of insurance in comparison with other countries. In 2009, Thailand s insurance penetration stood at 4.07, a low figure compared to the average penetration rate of the Asean region estimated at 6.00% in The Office of Insurance Commission is determined to build an awareness on the importance of the insurance system to the Thai population to become an integral part of their livelihood. Insurance can contribute materially to Thailand s economic growth and social stability and can help alleviate financial constraints of the government social services sector. Taking into consideration the vital importance of the insurance industry to Thailand s economy, the Office of Insurance Commission has set up a committee to draft the Insurance Development Plan Volume 2 ( ) with the objective of devising formative measures and action plans which will help boost the country s insurance penetration rate to 6.00% by the year This Insurance Development Plan Volume 2 was written and formulated with the assistance and cooperation of several experts and specialists in the insurance industry, as well as educational institutions, all who have generously offered their advice and 2

3 recommendations in bringing about the successful completion of this publication. August

4 TABLE OF CONTENTS Executive Summary Chapter 1 The importance of insurance to the Thai economy 1. Role and benefits of insurance 2. Future trends of insurance Chapter 2 Reasons and requirements in formulating the Insurance Development Plan 1. Outcome of Insurance Development Plan Volume 1 2. Assessment of the Thai insurance industry and future challenges 3. Liberalization of the insurance sector 4. Vision and Mission Chapter 3 Pillars of Insurance Development Plan Volume 2 Pillar 1: To build more confidence and awareness on the importance of insurance as well as better insurance access for the people Pillar 2: To strengthen the capacity of the insurance system Pillar 3: To improve the standard of service and protection for policyholders interests Pillar 4: To promote the infrastructure of insurance Chapter 4 Objectives, indicators, and guidelines in conforming with the Insurance Development Plan 1. Objectives of Insurance Development Plan Volume 2 ( ) 2. Indicators of work performance according to the Insurance Development Plan 3. Guidelines in conforming with the Insurance Development Plan Volume 2 ( ) 4. Summary of objectives in improving the insurance system according to the Insurance Development Plan Volume 2 ( ) 4

5 Executive Summary The Thai Insurance Industry is marked with consistent development over the years with a steady rise in premiums. During the past decade ( ), the premium rate of expansion reached the height of %, averaging 12.07% annual growth which is considered a stable increase. The insurance penetration rate is measured at 2.60 % of GDP in 1999 and a commendable increase of 4.07 % in 2009, with an insurance density of 49.3 US dollars in year 2000, climbing up to US dollars in Country GDP(USD) GDP per capita (USD) 2008 Insurance Penetration premiums (as % of GDP) Premium per capita (USD) 1. USA 14,265 46, , Europe 22,161 27, , Asia 15,646 3, Japan 4,845 37, , Korea , , Singapore , , Malaysia 219 8, Thailand 273 4, , Philippines 169 1, Indonesia 514 2, Source: sigma:swiss Re as of December 2009 Based on the table above, however, Thailand s insurance industry projects a relatively low expansion rate in comparison to many industrialized countries as well as countries in the Asian region. In 2008, Thailand s insurance penetration stood at 3.30%, a modest figure compared to the USA(8.70%), Europe(7.50%), Japan(9.80%), Singapore (7.80 %), and Malaysia (4.30%). With the average penetration rate of the Asian region estimated at 6.00 %,Thailand is considered appreciably low. 5

6 The Insurance industry plays a vital role in building financial stability for individuals and family establishments, and serves as source of savings network for the nation as a whole. The fact that only % of the Thai population hold life insurance policies is an indication that economic stability and the quality of life is still at a minimum level. An evaluation of the current status of Thailand s insurance industry reveal that the insurance business is at a relatively small scale compared to the size of the country s economy. The reasons can be attributed to the following: 1. Insufficient knowledge, understanding and confidence of the people in the insurance system 2. Inability of the private sector to adapt to the international supervisory standards 3. The structure of the Thai insurance industry 4. Basic structure needed for insurance development 5. Intense internal competition as a result of rapid change Faced with the challenges in motivating Thailand s insurance industry to flourish like other merging economies, the Office of Insurance Commission has proposed to the Insurance Commission to draft Insurance Development Plan Vol. 2 ( ) with the objective of developing the industry to greater heights, attaining international standards, and setting the stage for future liberalization. Presently, Thailand has undertaken a two- stage liberalization of the insurance industry: 6

7 First stage Approval granted t set up 25 new insurance licenses, out of which 12 are in the life insurance business and 13 are in non- life insurance business. Second stage 1998 Increasing foreign participation from 25% to 49% of registered shared capital. The Insurance Development Plan Vol. 2 includes formative direction and measures that will facilitate the liberalization of the insurance industry and to prepare the Thai market to enter into the competitive arena with businesses abroad. Measures include the Risk- Based Capital supervision fund to be gradually enforced in 2011, and guide policies to pave the way for future liberalization in the Asean region and other regions. According to evaluations made by the Office of Insurance Commission, goals and objectives outlined in the Insurance Development Plan Vol. 1( ) were successfully achieved within the proposed time frame. The Department of Insurance was re- instituted as the Office of Insurance Commission, an autonomous regulatory authority designated to perform its mission based on policies and measures outlined by the Insurance Commission. Adhering to the recommendations proposed in the Insurance Development Plan Vol.1, the Thai insurance sector has advanced toward the reform of insurance laws and the development of standardized system of insurance monitoring and examination, particularly the application of Risk- Based Supervision (RBS) and Risk Focused Monitoring and Examination. The Early Warning System was introduced as well as consumer protection schemes, 7

8 namely the increase of automobile compulsory insurance protection, the development of qualified and professional insurance personnel and a tax incentive scheme for policyholders, wherein the government has approved the increase of tax deductions for life insurance premiums from the previous sum of 50,000 to 100,000 baht. The Insurance Development Plan Volume 2 ( ) has devised schemes to bring forth significant changes to the Thai Insurance industry by outlining 4 pillars and 18 important measures as follows: 1. To build more confidence and awareness on the importance of insurance as well as better insurance access for the people. 1.1 Educate the people on the insurance system. 1.2 Develop insurance products to meet the changing risks of the people 1.3 Develop distribution channels and service systems 1.4 Establish codes of best practice for insurance intermediary 1.5 Strengthen the role of the insurance system in corporate social responsibility (CSR) 2. To strengthen the capacity of the insurance system 2.1 Strengthening the insurance system Audit and supervise insurance companies through Risk- Based Supervision (RBS) - initiate new ways in analyzing and auditing insurance companies - seek additional means for Prompt Preventive Actions Use Risk- based management and Risk- based Capital Regime - promote investment of insurance companies - maintain Risk- Based Capital Approach - Risk management 8

9 2.1.3 Preparation of insurance companies for transformation into a public company and persuasive measures for acquisition Group- wide supervision Anti- money laundering and combating the financing of terrorism 2.2 Build insurance company s capacity for competition Insurance product development process Reduce insurance costs Strengthen the capacity for insurance retention Implement measures to prepare the insurance business for liberalization in ASEAN by year To improve the standard of services and protection for policyholders interests 3.1 Reform laws concerning policyholders protection 3.2 Implement standardized rules of conduct in insurance services. 3.3 Improve services for policyholders protection 3.4 Establish a catastrophe fund 4. To promote the infrastructure of insurance 4.1 Strengthen the human resource capacity in the insurance business 4.2 Improve the tax system for the development of the insurance business 4.3 Set guidelines for product development in the capital market for insurance business 4.4 Operate according to standard accounts and asset evaluation 4.5 Strengthen the IT capacity 4.6 Reform insurance laws 4.7 Establish the OIC Advanced Insurance Institute. 9

10 Chapter 1 The importance of insurance to the Thai economy 1. Role and benefits of insurance The insurance system is a widely accepted tool in building security and assuring financial stability to all members of society. Life insurance brings confidence and security for income groups of society who may be affected by life s uncertainties. At the same time, long- term care has become increasingly important due to the rapidly growing elderly population and the advanced medical technology that enables people to have a longer life span. Developed countries such as the US, Europe, Japan and South Korea as well as developing countries such as Thailand are stepping into the aging society wherein the elderly population are growing at a faster pace than the child- bearing population. It is estimated that the elderly population in Thailand will increase from 7.1 million (10.8% of total population) in 2007, to 16.1 million in 2027, or 22.7% of the country s population. Consequently, the country s wealth and savings will decrease due to low work efficiency caused by the income group being burdened with caring for their elderly. Moreover, the rise in health and elderly care expenses has repercussions on the budget allocated to social welfare and services. Governments in most countries are making efforts in encouraging the public to seek ways in reducing their spending and increasing their savings through government bonds, real estate schemes and retirement plans to boost confidence and security in the form of life and health insurance. With a reliable savings plan, our stable income can be fortified through a life insurance system that provides protection and secure our savings. If the population learns to take advantage of a savings plan, it will help increase the 10

11 country s savings and further lead to the nation s economic development and expansion. Likewise, non- life insurance serves beneficial to business and investment sectors of society who are inevitably faced with daily risks from unforeseen circumstances or natural disasters such as floods, hurricanes, tsunamis, fire, lightning, explosions, accidents arising from travel, theft, loss of life and property, etc. All these risks and financial damage caused by third party liability can be alleviated by a reliable non- life insurance system. Moreover, unpredictable world temperatures as well as global warming has caused devastating loss of properties and lives in many parts of the world such as the hurricane Katrina in the US or the Nargis cyclone in Burma in Non- life insurance serves as an important tool in easing the loss and assisting both the victims and the governments from economic hardship and difficulties. In addition, the insurance system is considered an important financial tool in strengthening the social and economic system of the country as well as the quality of life of the people. At present, the Thai population is not taking full advantage of the benefits of insurance compared with other countries. Thailand s insurance penetration in 2009 stood at 4.07%, with only percent of the Thai population holding life insurance policies. Hence, there is a need to build confidence and educate the public on the importance, the need, and the benefits of the insurance system. Once trade, industrial and agricultural sectors begin to utilize the benefits of insurance, Thai people of all age groups will then be protected by a solid insurance system, paving the way to economic stability and better quality of life, with a sensible retirement plan put in place to guarantee the country s sustenance. 11

12 2. Future trends of the insurance business 2.1 The status of insurance business in the world market 1.) The World Economic Situation The GDP rate of the country is an indication of the size of the country s economy. During the last decade ( ), China s economy has developed to become one of the world s leading economies, ranking third after the US and Japan. In 2005, China s economy expanded more rapidly than expected, primarily through its exports accounting for 30% of its GDP. Government investment on infrastructure and construction, direct foreign investment and local consumption were adjusted to western standard prices, leading China s economy to jump from 7 th place in 1999 to become 3 rd in Considering the average income per capita of Asian countries in 2008, countries with the highest income per capita in chronological order are Singapore (40,444 USD), Japan (37,881 USD), Hong Kong (29,589 USD), Taiwan (17,143 USD), South Korea (16,755 USD), Malaysia (8,111USD), Thailand (4,246 USD), China (3,237 USD), Indonesia (2,194 USD), the Philippines (1,884 USD), India (1,028 USD), and Vietnam (1,017 USD). Thailand is grouped among the middle range, lower than Singapore, Japan, Hong Kong, Taiwan, South Korea, and Malaysia, but higher than Indonesia, the Philippines, India, and Vietnam. 12

13 Table 1.1: GDP per capita Unit: USD Country United States 34,162 35,967 36,416 36,145 37,864 40,133 42,343 44,423 46,009 46,893 Europe 12,281 11,542 11,726 12,839 15,681 18,106 19,448 21,111 24,442 27,396 Asia 2,354 2,327 2,141 2,204 2,440 2,637 2,897 3,091 3,402 3,938 Japan 34,992 36,404 31,699 32,198 34,874 36,845 35,542 34,204 34,438 37,881 China ,092 1,233 1,715 1,974 2,420 3,237 India ,028 South Korea 9,062 9,450 8,784 9,979 12,911 14,897 16,646 18,668 20,265 16,755 Indonesia ,186 1,276 1,614 1,870 2,194 Taiwan 13,136 13,937 12,601 12,589 12,699 13,540 15,219 15,502 16,739 17,143 Thailand 1,994 1,955 1,843 2,006 2,306 2,612 2,733 3,179 3,850 4,246 Malaysia 3,612 4,043 3,824 4,041 4,251 4,762 5,216 5,930 7,218 8,111 Hong Kong 23,731 23,971 24,478 23,824 23,382 23,913 25,797 26,761 28,750 29,589 Singapore 26,563 23,000 20,976 21,220 21,163 24,884 26,591 30,000 36,591 40,444 Phillipines 1, ,037 1,003 1,385 1,636 1,884 Vietnam ,017 Africa ,125 1,283 1,558 World 5,149 5,163 5,025 5,193 5,822 6,406 6,893 7,379 8,111 8,961 Source: Swiss Re. sigma No.3/2009 2). Domestic Savings Domestic savings is an additional factor that promotes growth in various economic activities since the annual insurance premium represents part of the country s GDP. Table 1.2 indicates the Gross Domestic Savings of various countries. It is worthy to note that developed countries with high income and high insurance premium contributing to its GDP, often have a lower savings rate than developing countries in Asia, indicating that developing countries such as Thailand, Malaysia, Singapore, Hong Kong, China and South Korea have the potential to utilize their savings for insurance and for elderly care at a higher rate than at present. 13

14 On the other hand, European countries and the US have less of a potential for insurance growth primarily due to the high rate of existing insurance policyholders, leading to lower savings rate. However, in the middle and long term, the direction of world growth in the insurance business could be shifted to the Asian region such as Thailand, who has a strong potential to attract investment from European and US insurance businesses. Table 1.2: Domestic Savings Unit : % of GDP Country China Hong Kong South Korea Taiwan Malaysia Philippines Singapore Thailand Vietnam Australia Japan France Germany Switzerland U.K Source: Swiss Re: sigma No 3/

15 3.) Insurance Penetration With respect to the world market, Thailand s insurance penetration in 2008 accounted for 3.3%, lower than Asia s average of 6.0 % and the world market average of 7.1 %. Considering the fact that Thailand s GDP is slightly higher than Asia s GDP, Thailand s life insurance and non- life insurance accounted for 1.8% and 1.5% respectively, while Asia s insurance penetration averaged 4.4% and 1.5% respectively, with the world average penetration accounting for 4.1 % and 2.9 %respectively. It is clearly evident that Thailand s insurance penetration is remarkably lower than the average of the Asian region and the world. A comparative study with neighboring countries indicate that Thailand s insurance penetration is lower than Malaysia s 4.30%, but higher than the Philippines and Indonesia at 1.40 %and 1.30% respectively. A comparative view of world insurance penetration would place Thailand at 40 th rank, with Malaysia at 33 rd and the Philippines and Indonesia at 73 rd and 75 th respectively. In the Asian region, Taiwan claims the first place, with South Korea at 5 th. Table 1.3 Insurance Penetration Unit: USD Country Increase (decrease) from last year % Life Non- life Total Life Non- life Total Life Non- life Total Life Non- life Total Asia (0.20) (0.10) (0.20) Taiwan S. Korea (0.20) HongKong (0.70) 0.10 (0.60) Japan Singapore India (0.10) Malaysia (0.30) 0.00 (0.30) China (0.10) 0.40 Thailand (0.10) Philippines (0.10) Source: Swiss Re. sigma No 3/

16 Vietnam (0.10) 0.00 (0.10) Indonesia (0.20) (0.10) (0.30) World (0.30) (0.20) (0.40) Chart 1.1 Insurance Penetration 2008 Source: Swiss Re.SigmaNo.8/2009 Upon examining the period between , Thailand s insurance penetration averaged between 2.60% %. In 2005, the country s insurance penetration peaked the highest at 3.61 %, placing Thailand at 38th rank in world comparison. In 2008, the figure dropped to 3.30 %, ranking at 40 th in the world. The percentages are relatively lower than the region and the world, estimated at 5.9%- 7.7 % and 8.7%- 9.6 % respectively. Among the Asian region, Thailand s insurance penetration is in the middle range, lower than Taiwan, South Korea, Hong Kong, Japan, Singapore, India, and Malaysia, but higher than the Philippines, Vietnam, Indonesia, with a rate equivalent to China, whose insurance penetration rate has significantly increased due to economic expansion. Averaged at 1.8% in the year 2000, it soared to 3.3% in

17 4.) Insurance Density: (Premiums per capita in USD) In 2008, Thailand s insurance premium expenses averaged USD per capita, divided into 77.2 USD per capita for life insurance premiums and 64.9 USD per capita for non- life insurance premiums. The Asian region insurance premium expenses averaged USD per capita, divided into USD per capita for life insurance and 60.4 USD per capita for non- life insurance. In Asia, Japan has the highest life insurance premium per capita at 3,698.6 USD, with the world insurance premium averaged at USD per capita, divided into USD per capita for life insurance and 264.2USD per capita for non- life insurance. Overall, the US has the highest insurance premium at 4,078 USD per capita. The figures illustrate that Thailand s insurance density is currently under performed compared to other countries, although an increase was evident from 2007 when insurance premium averaged at only USD per capita. Compared to neighboring countries, Thailand s insurance premium per capita is lower than Malaysia s USD per capita, but higher than the Philippines and Indonesia, with insurance premiums averaged at 29.5 USD and 25.6 USD per capita respectively. In world rankings, Thailand ranks at 61st in the market, while Taiwan ranks at 20 th, South Korea at 24 th, Malaysia at 46 th, Indonesia and the Philippines ranking lower than Thailand at 81 st and 82 nd respectively. However, between , Thailand has continually increased its spending on insurance premiums; In 1999, only 45.5 USD was spent per capita, but by 2008, Thai insurance premium which represent an immense increase to USD per capita, a % increase or an estimated 13.12% annual increase. 17

18 A closer examination of neighboring countries such as Malaysia showed insurance premium estimated at USD per capita in 1999, increasing to USD per capita in 2008, which represents a % increase, or 13.52% annual increase. Indonesia increased its insurance premium from 9.5 USD per capita in 1999, to 29.5USD per capita in 2008, an increase of %. The Philippines also saw an increase of insurance premium from 13.7 USD per capita in 1999 to 25.6 USD per capita in 2008, a 86.86% increase. Table 1.4 Insurance Density: Premiums per capita in USD Unit: USD Source : Swiss Re. sigma No.3/2009 Chart 1.2 Insurance Density: Premiums per capita in USD 2008 World United States NortAmerica Latin America Europe Asia Japan Hong Kong Singapore Taiwan South Korea Malaysia Thailand PR china India Indonesia Philippines Vietnam Africa Oceania InsuranceDensity (Premiums percapita in USD in 2008) , , , , , , , , , , , USD ,000 1,500 2,000 2,500 3,000 3,500 4,000 4,500 Life Non-life 18

19 Source: Swiss Re. Sigma No.8/2009 To sum up, in comparison with countries of the Asian region with similar levels of economic development, there is a need for Thailand s insurance industry to develop and expand a further %, with insurance premium per capita no less than 240 USD per capita, or an insurance penetration rate of no less than 5%. In other words, in 2009, the Thai insurance should have had an insurance premium of no less than 650,000 million baht. In reality insurance premium that year only accounted for 368,770 million baht, the lost premium calculated as the opportunity cost of the Thai insurance business. 2.2 Growth rate of Thai insurance Industry between Statistics on the expansion rate of the Thai insurance industry between 1999 until 2009 revealed that in 1999, the insurance business was recovering after a decline in 1997 and 1998, with the lowest rate of expansion in 15 years, a deficit of 0.41% and 8.09 % respectively. Similarly, economic expansion during that period was reduced to 1.4 % and 10.5% respectively due to Thailand s severe economic recession. By 1999, the insurance business gradually revived and expanded until 2009, with a growth rate of 12.37%, including 16.67% expansion in life insurance and 3.39 % expansion in non- life insurance. However, Thailand s economic growth rate was reduced by 2.3% due to the global financial crisis in 2008 up until early Between 2001 until 2002 the Thai insurance business witnessed the highest expansion rate at % and 19.27% respectively, % growth in life insurance in 2001 and 22.41% in Non- life insurance expanded 12.93% in 2001 and 13.87% in During the same period, Thailand s economy grew by 2.2% and 5.3% respectively. 19

20 Chart 1.3: Direct premiums Unit: million baht Source: Research and Statistics Division, Examination Planning and Development Department Chart 1.4: Insurance growth In 2009, Thailand s economy contracted by 2.3% in the first 3 Source: Research and Statistics Division, Examination Planning and Development Department quarters, with indication of positive growth in the 4 th quarter. The Thai insurance industry, however, expanded 12.37% from the previous year, the highest expansion since 2003 with total insurance premium amounting 368,390 million baht. Life insurance expanded remarkably by 16.67%, with insurance premium accounting for 258,545 million baht, while non- life insurance expanded merely 3.39%, with insurance premium at 109,845 million baht. The expansion is an improvement from the first quarter of 2009, where there was a deficit of 0.75%. It is expected that in 2010, 20

21 the insurance business will expand 13% from the previous year, with total premium estimated at 415,959 million baht. Life insurance is expected to expand 15%, with premium estimated at 297,327 million baht, while non- life insurance should expand by 8%, with premium estimated at 118,633 million baht. Chart 1.5: Insurance Growth Rate and Trends for 2010 Unit: million baht Source: Research and Statistics Division, Examination Planning and Development Department It is apparent that economic growth does not necessarily lead to life insurance expansion, while non- life insurance naturally follows the economic flow. The growth of the insurance business and the country s economic growth may not follow the same pattern year after year, but the government s guidelines for continual promotion and education to the public on the importance of insurance are vital: 1. Educate and build awareness on the importance of insurance to the public so they understand the necessity and benefits they can gain from a reliable insurance system. 2. Stimulate innovative development of insurance products that corresponds to the public s risks, needs and preferences in providing protection for their well- being. 3. Foster the development and knowledge of insurance so that every group of people has access, receive benefits and gain protection from insurance. 21

22 4. Develop additional distribution channels through bancassurance, commercial banks, telephone or the postal system to reach the public more effectively. 5. Support and develop insurance agents and brokers with appropriate skills and knowledge to offer more complete information and provide quality services to the public. 2.3 The development of the Thai Insurance Industry between ) Insurance Assets, Liabilities and Capital 1.1) Assets As of December 2009, total assets of the insurance business between 1999 until 2009 amounted to 1,201,681 million baht, increased by % from 1999, which amounted a mere 300,908 million baht. It is evident that the insurance business has expanded considerably with a % increase in total assets. In 1995, life insurance assets amounted 216,520 million baht, but by 2009, there was an increase to 1,046,534 million baht, a remarkable % increase. Non- life insurance assets also showed a slight increase, from 84,388 million baht in 1995 to 155,147 million baht, or an 83.85% increase. Compared to 2008, the insurance business has assets increased by 16.31%, a 17.10% increase from the previous year in life insurance and an 11.26% increase in non- life insurance. 22

23 Chart 1.6 Total Assets of the Insurance Industry (admitted) baht Unit: million Source: Research and Statistics Division, Examination Planning and Development Department 1.2) Liabilities Between 1999 until 2009, insurance liabilities as of December 2009 amounted to 1,013,736 million baht, an increase from 232,141 million baht in 1999, estimated at a % increase, or % annual increase. Total liabilities consist of life insurance liabilities 916,946 million baht, an increase from 1999 at only 184, 135 million baht, a % increase, or % annual increase. Non- life insurance liability amounted 96,790 million baht, an increase from 48,006 million baht in 1999, calculated as a % increase or 6.83% annual increase. Compared to 2008, liabilities increased 13.37%, or 84.36% of total assets. Despite the high level of liabilities compared with the assets, the amount includes the insurance policy reserve amounting 920,925 million baht, or 90.84% of total liabilities. The insurance industry has prepared the investment assets to support enforced policies totaling 1,114,900 million baht, or % of the policy reserve. This is divided into 993,565 million baht in life insurance, or % of the policy reserve, and 121,335 million baht in 23

24 non- life insurance, or % of the policy reserve. The insurance business invested its assets in high- quality financial instruments and high liquidity in order to pay indemnities to its policyholders by investing in bonds, calculated at 61.48% of total investment assets. Chart 1.7: Liabilities of the Insurance Industry (admitted) Unit: million baht Source: Research and Statistics Division, Examination Planning And Development Department 1.3) Capital As of December 2009, it is indicated that between , the insurance industry had capital funds totaling 187,945 million baht, increased from 1999 at 68,767 million baht, or %, or annual increase. The capital designated for life insurance amounted to 129,588 million baht, an increase from 1999 at 32,385 million baht, showing % increase, or 19.95% annual increase. Funds designated for non- life insurance amounted 58,357 million baht, an increase from 1999 at 36,382 million baht, showing 60.40% increase, or 4.90% annual increase. 24

25 Compared with 2008, the insurance business demonstrated a capital increase of 48,990 million baht, or a 35.26% increase. From the end of 2008, capital for life insurance increased 36,184 million baht, a 38.74% increase, while capital for non- life insurance increased 12,806 million baht, or a 28.11% increase. Chart 1.8 Insurance Capital (admitted) Unit: million baht Source: Research and Statistics Division, Examination Planning and Development Department 2) Investment of the insurance business In 2009, insurance business investment accounted for 1,114,900 million baht, or % of total assets, an 18.02% increase from the previous year. Life insurance investment accounted for 993,565 million baht, a % increase from the previous year while non- life insurance investment accounted for 121,335 million baht, a 20.83% increase from the previous year. Investment in government bonds with low risk accounted for 685,442 million baht, or % of total investment assets, consisting of investment in life insurance amounting 652,989 million baht, or 65.72%, and investment in non- life insurance amounting 32,453 million baht, or 26.75%. 25

26 In 1999, investment assets accounted for 244,499 million baht. By 2009, total investment assets increased %, or 16.42% annual increase from Investment in life insurance increased % or 18.04% annual increase from 1999 where assets accounted for 192,961 million baht, while investment assets in non- life insurance increased %, or an 8.66 % annual increase. Chart 1.9: Investment Assets for Life Insurance Unit: million baht Source: Research and Statistics section, Examination Planning And Development Division Chart 1.10 Percentages of Investment Assets for Life insurance Source: Research and Statistics Division, Examination Planning and Development Department 26

27 Chart 1.11 Investment assets for Non- life Insurance Unit: million baht Source: Research and Statistics Division, Examination Planning and Development Department Chart 1.12 Percentages of Investment Assets for Non- Life Insurance Source: Research and Statistics Division, Examination Planning and Development Department 3) Number of Life insurance and non- life insurance policies Between 1999 until 2009, there had been a steady increase in insurance policies. While there were only 21,189,847 insurance policies in 1999, the figure increased to 51,808,022 in 2009, indicating a % increase, or 8.74% annual increase. Life 27

28 insurance policies accounted for a total of 17,060,920, a % increase from 1999, or 8.20% annual increase, while non- life insurance accounted for a total of 34,747,102, a % increase from 1999, or a 9.03% annual increase. Compared to 2008, insurance policies increased 6.67%, with 5.45 % increase in life insurance and 7.01% increase in non- life insurance policies. Table 1.5 Number of life and non- life insurance policies Unit: number of policies Source: Research and Statistics Division, Examination Planning and Development Department 28

29 Chart 1.13 Number of Insurance Policies between Source: Research and Statistics Division, Examination Planning and Development Department 4) Number of Insurance policies per capita Upon evaluating the number of insurance policies per capita between 1999 until 2009, it is indicated that in 1999, the number of policies purchased per capita was 34.36%, increasing in 2009 to 81.22%. Life insurance policies per capita increased from 11.96% in 1999 to 26.75% in 2009, while non- life insurance from 22.40% in 1999 to 54.47% IN The figures thus indicate that the insured holds more than one insurance policy. Table 1.6 Number of policyholders per capita Source: Research and Statistics Division, Examination Planning and Development Department 29

30 Chart 1.14 Insurance Policyholders per capita between Unit: % Source: Research and Statistics Division, Examination Planning and Development Department 5) Sum Insured as of GDP (Non- life Insurance) Between , insurance premium demonstrated yearly increase except for 2006 and 2009 where it contracted 3.51% and 6.03% respectively due to political unrest in 2006 and the global economic crisis in However, insurance premium increased remarkably since 1999, with total insurance premium totaling 55,238,588 million baht, signifying a % increase. While the present GDP price amounted to 9,047,631 million baht, a mere 95.11% increase from 1999, sum insured per GDP in 2009 was estimated at million baht while in 1999, it was estimated at only %, The figures thus demonstrate the increasing role non- life insurance plays in the public and private sector as well as among the Thai public as a whole. The increasing importance is brought about by efforts made by the public sector to disseminate information to the people on insurance, how it can provide protection against the potential of unexpected losses and help secure future assets, assuring a solid and stabilized quality of life. 30

31 Table 1.7 Non- life insurance premium per GDP Source: Research and Statistics Division, Examination Planning and Development Department Chart 1.15 Non- life insurance premium per GDP between Unit: million baht Source: Research and Statistics Division, Examination Planning and Development Department 31

32 6) Number of insurance companies In 2009, there were a total of 95 insurance companies in Thailand, comprising of 24 life insurance companies ( 23 locally registered companies and one foreign branch)and 69 non- life insurance companies( 59 locally registered companies, 5 health insurance branches, and 5 foreign branches), 1 life reinsurance and 1 non- life reinsurance company. Table 1.8 Sum insured as of GDP Source: Research and Statistics Division, Examination Planning and Development Department It is evident from the table that in 1999, insurance companies have not clearly divided their businesses, with 21 life insurance companies, 75 non- insurance companies and 4 companies operating their business in both life and non- life insurance, as well as one reinsurance company operating both life and non- life insurance. 32

33 7) Claims paid from insurance policies Between , the insurance industry paid claims increased according to the continuous premium growth rate. In 1999, the insurance sector paid claim benefits of 48,076 million baht in total, while in 2009, 133,828 million baht were paid in indemnities, signifying a % increase, or 15.83% annual increase. Upon closer examination, it was revealed that benefit payments for maturity life policy were due totaling 38,072 million baht, or 41.57% of total life insurance claims, as follows: cash surrender value - 21,228 million baht, or 23.18% death benefits - 10,994 million baht, or 12% As for non- life insurance, 34,487 million baht were paid in indemnities for motor insurance, calculated at 81.64% of total indemnities. It is clear that insurance can provide protection against the potential of unexpected losses and tragedies and help secure future assets and a stable quality of life. Table 1.9 Claims paid Source: Research and Statistics Division, Examination Planning and Development Department 33

34 2.4. Distribution of policyholders up- country Considering the number of life insurance policyholders is one way of measuring the people s quality of life, for it demonstrates the percentage of the population who are financially secure and protected by life insurance. Statistics in 2009 indicate that insurance coverage is spread to all regions of Thailand, with a majority concentrated in provinces with vibrant economies, while provinces with low- income demonstrate a low percentage of life insurance policy holders. Table 1.10 Provinces with the highest and lowest number of policyholders Source: Research and Statistics Division, Examination Planning and Development Department 2.5 Insurance business trends The world was affected by the global financial crisis in 2009, to which Thailand was no exception. The economic decline had repercussions on Thailand s financial stability in the 4 th quarter of 2008, slowing down the export production and the tourism industry to a great extent. The country s GDP decreased for 3 consecutive quarters in 2009, leading Thailand to be under economic recession. Financial institutions imposed stricter measures on loan approvals. 34

35 To help boost the economy and alleviate the situation, the government exercised financial measures through projects directed at low interest rates and moderate installment regimes. With Thailand s main trade partners all afflicted by the economic downturn, consequently led Thailand s GDP in 2009 to contract 2.7% (Source: Bank of Thailand) Despite the economic recession in 2009 affecting Thailand s overall economy, the insurance industry continued to grow at a steady pace with total direct premiums amounting to 368,770 million baht, a 11.87% increase from the previous year. - Life Insurance 258,545 million baht, a 15.78% increase - Non- life insurance 110,225 million baht, a 3.67% increase The increase in direct premiums can be attributed to the new and improved channels of distribution as well as updated policies that better suit the needs of the public. The 52 million policies in force increased a further 6.9%, leading to an expansion in insurance penetration from 3.62% in 2008 to 4.07% in The percentage of life insurance policyholders per capita also increased from 25.5% in 2008 to 26.75% in Total assets of the entire insurance system increased to 16.31% from 2008, that is, an increase from 1,030,293 million baht in 2008 to 1,201,719 million baht in 2009 (divided into 1, 046,534 million baht in life insurance assets and 155,185 million baht in non- life insurance assets.) Insurance capital increased from 2008 at 142,771 million baht to 187,978 million baht, or a 31.66% increase. (Capital for life insurance 129, 588 million baht and 58,390 million baht for non- life insurance.) It is expected that in 2014, the insurance industry will be able to fulfill the needs of its consumers as it continues to expand in written premiums, assets, and insurance capital to a rate of 15% - 18%, or approximately 424,126 million baht of written premiums, divided into 305,083 million baht in life insurance and 119,043 in non- life insurance. Insurance penetration is expected to stand at a rate of 4.6%. By 2014, the last year of the Insurance Development Plan Vol. 2, total written premiums of the insurance business is estimated 35

36 to be at 740,000 million baht, or double the total in 2009 with insurance penetration estimated at 6%. Chart 1.16 Direct premiums between and Trends for 2010 Unit: million baht Source: Research and Statistics Division, Examination Planning and Development Department 36

37 Chapter 2 Reason and Requirements in Formulating the Insurance Development Plan 1. Outcome of Insurance Development Plan Volume 1 The Insurance Development Plan is a national plan initiated through joint efforts and determination of the public and private sectors to seek ways to develop and improve the insurance system in Thailand. The Insurance Development Plan consists of clearly defined insurance supervisory and regulatory policies that encourage the cooperation of related establishments and agencies to help create an insurance system that is independent, standardized, and efficient. It is evident that after formulating the Insurance Development Plan Volume 1, reforms and structural changes were clearly implemented to improve the present infrastructure. Outline below is a summary evaluation of the developmental changes according to the Insurance Development Plan. 1.1 Liberalization of the Insurance industry The main objective of the Insurance Plan Vol. 1 was to revise the infrastructure and role of the organization to become more flexible, efficient, accessible, and liberalized in compliance with the resolution of the National Corporate Governance Committee on November 5, At the time, the Department of Insurance participated in the ROSCs/FSAP, a joint cooperation between the World Bank and the International Monetary Fund in the performance audit of the Insurance sector under the Financial Sector Assessment Programs: FSAPs, its evaluation being based on 37

38 Insurance Core Principles :ICP of the International Association of Insurance Supervisors: IAIS According to the ICP3: Supervisory authority, the insurance business should be allowed flexibility and transparency with adequate control over management and sufficient funds to perform its operations. In July 2006, the Pre- FSAP Committee organized a mission to the Department of Insurance to offer their recommendations, proposing that the department be liberalized to prepare for the Financial Sector Assessment Programs (FSAPs). Hence, insurance liberalization became the main priority of the Insurance Development Plan Vol. 1. Efforts were made in the revision of legislative laws to transform the organization into a liberalized establishment. Consequently, the Insurance Regulation and Promotion Commission Act BE 2007 (2007) became effective on September 1, 2007, transforming the Department of Insurance from a government agency into the Office of Insurance Commission (OIC), an independent newly devised administrative organization with a framework similar to the Bank of Thailand and the Securities and Exchange Commission. The primary role of the Office of Insurance Commission (OIC) is to supervise and promote insurance business conduct with efficiency, transparency, and reliability, while ensuring that the public receive maximum rights and protection of their insurance benefits. 38

39 1.2 Insurance Legislative Reform Aside from the transformation of a government agency into an independent organization, it is important for the Office of Insurance Commission to revise rules, criteria, regulations as well as legislative laws that are relevant, efficient, and conform to international standards. Out- dated regulations are excluded and replaced with new approaches that move toward elevating Thai standards to international benchmark. The Insurance Development Plan Vol. 1 has led to the revision of Life Insurance Act 1992 and the Non- life Insurance Act 1992 to the more improved Life Insurance Act II and Non- Life Insurance Act II effective February 2 and 6, 2008 respectively. The two new legislations underwent extensive reform which included the addition and revision of several core principles of insurance in order to build financial stability for insurance companies, set in place with a risk management system that is modern, transparent, and adhering to corporate governance. Insurance principles in the protection of public rights have been further developed in the supervision of insurance companies marketing techniques, outlining codes of conduct in sales distribution channels, and the establishment of a life insurance fund and a non- life insurance fund. Major improvements and revisions are outlined in summary as follows: 1. Reinforce supervisory measures in ensuring the stability of insurance companies: - Require insurance companies to comply with risk based capital approach - Require insurance companies to comply with Asset Liability Matching (ALM) - Require local insurance companies to transform to public companies within 5 years to increase its funding 39

40 capabilities, promote merge of companies to expand in size, attain a more stabilized financial status and create economy to scale. 2. Improve beneficiary measures in the protection of public rights - Render the Office of Insurance Commission the authority to devise guidelines and codes of conduct for insurance agents, brokers, and bank agents to conform to in order that the public receive accurate and up- to- date information before purchasing insurance policies - Require that promotional materials, pamphlets and printed images are integrated in the sale of insurance policies and to reinforce insurance brokers or agents to only use materials that are approved by the insurance companies. - Require insurance companies to disclose information on the financial status, performance evaluation and insurance data to the public to assist in consumers decision- making process - Require insurance companies to share the responsibility in damages occurred by insurance agents and authorize insurance brokers to receive premiums on behalf of the insurance company - Develop skills, knowledge and experience of insurance agents and brokers by requiring that they pass the insurance course devised by the Office of Insurance Commission before obtaining or renewing their insurance license - Include in the Supervisory Act a clause authorizing the OIC to evaluate, consider and settle disputes concerning insurance contracts - Set up a policyholder protection fund to protect the public s rights and to ensure that policyholders receive indemnity in case the company declares bankruptcy or has its license revoked. 40

41 Revision of the above legislations have led to the effective enforcement and the further issuance of several sub- Acts in the ministerial level, order of the OIC Committee and order of the Registrar. 1.3 Developing the Supervisory and Regulatory system to international standards. During the initial stages of comprehensive reform of the insurance infrastructure and legislations, the major step in ensuring that the Insurance Development Plan Volume 1 meets its objectives is to develop the Monitoring and Examination sector, outlined as follows: 1. Monitoring and Examination scheme Efforts have been made to improve techniques in the monitoring and examination of insurance companies with emphasis placed on Risk- Focused Monitoring and Examination. Basic principles include: - Monitor to single out companies that are at risk to the financial stability through monthly and annual budget reports - Companies at financial or performance risk will be encouraged to deal with the source of the issue to reduce the degree of damage The above principle of an Early Warning System (EWS) is followed by preventive and corrective measures as follows: Quantitative measures are composed of 2 ratios, the Primary and Secondary ratios : The Primary ratio 41

42 The Primary ratio is divided into 2 sub- ratios. The company has to achieve monthly standards according to scale. If any ratio falls below standard, the OIC will require the company to submit an indication report and improvement schemes as the scale serves to measure the adequacy of funds and capital assets against debt and binding insurance contracts. The Secondary ratio Life Insurance companies have 5 ratios of monitoring, while non- life insurance companies have 6. The OIC will require revision of any ratio that deviates from 3 consecutive months. Scale of monitoring are divided into 3 groups - efficient management of expenditure, sufficiency of insurance reserve, and measuring the changing levels in monetary funds. Qualitative Measures Evaluation is based on the companies minimum requirement for company risk management composed of requirements of Board members and executive members to possess fit and proper conduct, monitoring to ensure Board members conform to risk management framework, and the submission of risk management policies and a 3- year business plan to the OIC, as well as submission of an annual risk management report. To ensure that strict enforcement of monitoring and examination of insurance companies will lead to financial stability and gain public trust, the OIC has imposed rigid measures of the Early Warning System (EWS) to be incorporated in the company s work performance. Inspections are divided into 3 levels: 42

43 Level 1 For companies whose primary and secondary ratios deviate from acceptable standards, the OIC will conduct an investigation of each case as well as send mobile units to inspect the company while expediting a plan to quickly resolve the issue. Level 2 - Companies formerly categorized under level 1 that have recently resolved their issues are closely monitored to ensure their work performance is strengthened. Level 3 - Companies that demonstrate secure financial stability are monitored and examined on a regular basis by the OIC. Monitoring and Examination focuses on various aspects of risks, with management and control linking central and regional units 2. Risk- Based Capital (RBC) Require companies to maintain risk- based capital reserve proportionate to assets, liability, bindings or risk level as designated by the committee to be completed with 3 years (Jan 31, 2011) from when the life insurance and non- life insurance (2 nd ) Act 2008 becomes effective. 3. Enterprise Risk Management (ERM) Require insurance companies to comply with enterprise risk management schemes in order to establish more effective, efficient and standardized business operations. Executive members of insurance companies are to formulate guidelines in enterprise risk management with an internal control system to ensure that relevant parties duly comply with devised framework. In addition, an enterprise risk management policy and 3- year business plan 43

44 are to be submitted to the OIC to include perspective scope of business, rate of expansion, and proposed schemes for expansion. 4. Sale of insurance products and rules of conducts of insurance agents and brokers To ensure that insurance agents and brokers perform their tasks according to codes of best practice, guidelines are devised to develop insurance products distribution through 5 main channels namely through agents, brokers, tele- sales, post office, and bancassurance. The public is to be accurately informed of important and up- to- date facts regarding the types of policies available taking into consideration their individual needs, financial status, and rights as policyholders, all to assist the public in the right decision making. 5. Disclosure of information Insurance companies are required to disclose to the public complete, transparent, and up- to- date information on their financial status and work operations to assist in the selection and decision making process. Company profile and information to be posted in the company website as well as at the company head office and branches are to include the following: - Financial statement compose of balance sheets, capital funds and significant financial ratios - Work operations composed of income statements, cash flow statements and direct premium classified by insurance types. 44

45 - Underwriting, indemnities, and company contact information 1.4 Consumer Protection To improve services on the protection of public rights regarding insurance benefits, guidelines are devised to provide service that is fast, accurate, complete systematic and transparent through the setting up of a One Stop Service consisting of both a complaint unit and a claim settlement unit. In addition, the establishment of the Insurance Service Center (ISC) assists in two major activities: 1. The 1186 Hotline Service is a nation- wide number that provides services from Monday to Friday from 8:00-16:30, hrs. with additional services during important holidays such as New Year s and Songkran. Services include: - offer advice/recommendation as well as news and information on insurance benefits - respond to questions and provide information via telephone - respond to public enquiries, insurance companies and related agencies via the Q&A web board, and via electronic mail system (E- Mail: [email protected]) 2. The Fast Track Complaint Service presents the insurance business with a modern and positive image by providing the insured and the general public with quick and immediate assistance in resolving insurance disputes and conflicts. The OIC head office effectively coordinates with regional offices countrywide to communicate with the complaint or quality control unit to conduct an examination and resolve the issue in its initial stages. Complicated issues or disputes that require special attention and cannot be immediately 45

46 resolved will be directed to the Policy holder Protection Department of the OIC. 1.5 Insurance Personnel development The development of qualified insurance personnel especially insurance agents and brokers require set guidelines to ensure the high standard of skills and knowledge as follows: 1. In order to obtain a license from the Registrar, insurance agents and brokers are required to possess all the qualifications necessary in addition to never having their license revoked within 5 years of application. 2. To ensure that insurance agents and brokers have the skills, knowledge, and standardized code of conduct, all candidates are required to pass a test on code of ethics, an insurance examination on general knowledge as well as on legal aspects of insurance, and a training program required by the OIC. 3. To ensure that insurance agents and brokers continually develop and improve their skills and knowledge on insurance, those requesting for license renewals are required to undergo additional training from the OIC or pass a training course devised by the OIC, wherein each training course has varying levels of expertise on knowledge of selling insurance, codes of conduct, insurance laws, insurance products, risk- based management, indemnities, and codes of best practice. In the supervision to ensure that company members adhere to regulations, guidelines and codes of best practice of the business, penalty measures are imposed on those who 46

47 do not comply, with the Registrar exercising the authority to revoke their licenses. 1.6 Increase tax deductible in life insurance premium In an effort to promote long- term savings, increase Thailand s domestic savings, and seek incentive measures so people utilize life and non- life insurance systems more for their savings, the Ministry of Finance approved the request for an increase in personal income tax deductibles on life insurance premiums paid from 50,000 to 100,000 per annum, effective in the 2009 income year 1.7 Stimulate innovative product developments that correspond to public s risk, needs, and preferences. In the continuous development of insurance products to provide protection to various groups of people according to class, age, profession, as well as the aging society, efforts have been made to develop innovative products to serve specific needs, for example: 1. Annuity products promote long- term saving to life insurance system to support the aging society. 2. Unit- Linked insurance focuses on those with sufficient understanding of the concept of investment who seek new investment alternatives allowing the insured to select their investment options while providing life insurance coverage as well as investment benefits. 3. Weather Index provides insurance to the agricultural sector, Thailand s main industry by specifying the level of rainfall as an indicator, hence protecting against high realization of weather variable and reducing the risk in agricultural production. The weather index insurance pays indemnities based not on actual losses but on the 47

48 established level of rainfall measured from a weather station. 2. Evaluating the Thai insurance system, and future challenges Evaluating the Thai insurance system An evaluation of Thailand s insurance industry reveal continuing growth with increase in insurance penetration from 2.60% in year 2000 to 4.20% in 2009, and with insurance density increase from 49.3 US $ in year 2000 to US$ in Chart 2.1: Insurance penetration P Source: Research and Statistics Division, Examination Planning and Development Department 48

49 Table 2.1: Comparative study of size of insurances industries 2008 Insurance Penetration (US Dollars) Insurance Penetration per Capita (US Dollars) Insurance Premium per Country Premium Capita USA 14,265 46, , Europe 22,161 27, , Asia 15,464 3, Japan 4,845 37, , Korea , , Singapore , , Malaysia 219 8, Thailand 273 4, Philippines 169 1, Indonesia 514 2, Source : sigma : Swiss Re December 2009 However, when comparing Thailand with other developed countries as well as countries with similar levels of development, Thailand s insurance industry remains relatively small. Its insurance penetration in 2009 was estimated at 3.30%, considerably low compared with the US (8.70%), Europe (7.50%), Japan (9.80%), Singapore (7.80%), and Malaysia (4.30), and lower than the 6% average in the Asian region. A study of the public s concern for life insurance as an important tool in assuring overall financial stability and an indication of the country s domestic savings, reveal that the number of insurance policies per capita in Thailand is estimated at only 26.75%. This figure demonstrates that the economic stability and quality of life of the people is still low due to significant factors and challenges affecting the development and expansion of the insurance industry. Reasons are detailed as follows: 49

50 2.1.1 The public s knowledge, understanding and trust in the insurance system 1) The public s knowledge and understanding of the insurance system The public still lacks understanding, knowledge and awareness on the importance and benefits insurance can have on the well- being of the people, as well as how it can serve as a beneficial tool in risk management in trade, industry, agriculture, as well as financial plans and savings in the household. In the insurance system, premiums are paid at present in order to protect financial losses that may occur in the future through risks, uncertainties, accidents or natural disasters. Those who still lack sufficient knowledge of insurance, neglect to see the value of insurance in the non- occurrence of accidents or uncertainties, when insurers benefits are not reimbursed to them. Moreover, insurance is a specific binding contract between the insurer and the insured governed by the doctrine of utmost good faith wherein the insurer is obliged to disclose information to the insured about insurance coverage exclusions, benefits, conditions for claim payment, especially in non- life insurance where indemnities are paid according to calculated damage at the occurred place and time of damage. It is imperative that those involved in the insurance business from the insurance company, insurance agents, brokers, underwriters, etc disclose complete and accurate information to the public on all aspects of insurance that are material to the decision the insured makes, all to avoid future misunderstanding in the contents and contract bindings, which can consequently lead to mistrust in the insurance system and the negative image attributed to the industry as a whole. 50

51 In order to generate progressive growth and stability to the Thai insurance industry, it is important to instill knowledge and educate the public and the young generation on the basic principles of insurance and risk management. It is essential to understand that insurance is an instrumental tool that can serve as a central fund where members of society who face common risks can voluntarily contribute to the fund (known as premium) at any amount according to their level of risks, and collect their savings to pay compensation to members encountering loss or damage to their lives or property. The person responsible in managing the fund will evaluate the level of risk, the amount of premium, the evaluation of loss, damages and indemnities, etc, thus known as the insurance company, an establishment that receives normal profit from the insurance management, but can seek profitable means governed by standardized laws and regulations that is fair and justifiable to both the insurer and the insurance company. 2) The public s trust and confidence in the insurance system Insurance is a business based on sales and services of insurance contracts, products guaranteed to provide protection of life and property of the insured in unexpected loss or damage occurring in the future. Benefits will be paid according to agreement of contract or in unexpected events, and indemnities paid in financial loss or damage incurred. The insured pays insurance premium calculated from the individual s level of risk, and since the insurance products are considered to be intangible goods, the insurance policy outlines clear- cut conditions in paying benefits or indemnities. Due to the nature of insurance products and services being prepaid expenses, the main factor influential in the public s decision to purchase insurance policies is trust, confidence, and the image of the insurance company. The financial stability, work reliability, performance, speed 51

52 and consistency are fundamental qualities in portraying a trustworthy insurance company. In addition, quality services which includes exercising codes of best practice of all insurance company members from the sales of policies, after- sales services, and courteous handling and payments of benefits and indemnities in a fair and equitable manner are essential. In the past, the insurance sector faced problems in presenting a positive image to the public due to several factors such as misconduct of insurance of agents/ brokers, the lack of knowledge and inaccurate understanding of insurance principles, protection benefits and conditions, inappropriate conduct of members responsible in payment of indemnities, delay in payment of indemnities, and financial instability of motor insurance companies. With the cooperation of the insurance business sector, the problems outlined have been prioritized and gradually resolved through measures formulated in the Insurance Development Plan Vol. 1, achieving satisfactory results. In an effort to build public trust and project a positive image of the Thai insurance system, the full cooperation and determination of insurance sectors to conform to measures and guidelines devised in the Insurance Development Plan Vol. 2 has become a principle factor in bringing about an effective Thai insurance system Adjusting to international supervisory framework Changes in the social, economic, legal, and technological structure have led to changes in consumers needs and preferences, including modernization in the financial business and services sector. Some financial institutions have taken advanced steps by incorporating bancassurance in their banking system, allowing the sale of insurance and similar products in commercial banks. Insurance is a business with financial links with foreign 52

53 countries in the form of insurance principles, laws, and the nature of insurance management that requires reinsurance in order to transfer the risk from the insurer to the reinsurer. The constant development in the insurance structure and the need for transparency and fairness has led to adjustments in laws and regulations governing the insurance business to be consistent with innovative changes, while ensuring that it meets the WTO international monitoring standards as well as the International Association of Insurance Supervisors: IAIS During the past two years, there has been a total of 143 new and amended legislations governing insurance, as the life insurance legislation and non- life legislation of 1992 (amended in 2008) stipulate that all revisions and amendments are to be completed and approved within two years from the date that the legislation becomes effective. In addition to conforming to laws, regulations and standards of insurance, the insurance sector is required to conform to other laws that have direct or indirect consequences as well, such as laws governing anti- money laundering, laws on consumer protection, and taxation laws. The revision and amendments of rules, regulations, codes of conduct and standard practices have led to the OIC s improvement of the monitoring and examination system as well as the protection of public rights on insurance. As a consequence, the entire Thai insurance sector were required to keep pace with the on- going changes and gradually adjust themselves to conform to the newly revised standardized laws and regulations accordingly Structure of the Thai insurance industry 53

54 1) Insurance companies differ in size, especially non- life insurance companies which at present accounts for a total of 68 companies. There are only 3 large companies with direct annual premium exceeding 5000 million, 23 medium- sized companies with direct annual premium between million baht, and 37 small sized companies with direct annual premium not exceeding 1000 million baht. The small companies are restricted by limitations in acquiring capital, lack of expertise and professionalism of administrative and staff members, with low capital and low income. With limitations in economy of scale, small companies are unable to develop its management operations and improve the quality of its personnel through the use of modern technology and management schemes. Hence, without quality management and services, small scale insurance companies have difficulty in competing at domestic and international levels. The fact that the majority of Thai insurance companies are small- sized has direct influence on the potential in developing its operations in terms of location, management, technology, equipment, and personnel. Personnel development in particular is a vital factor in ensuring the success of an establishment. The company size has an effect on the effective management of expenses, as large companies would be at an advantage in economy of scale in terms of expenses in issuing policies, sales promotions, as well as management and investment costs. Moreover, larger companies are more financially stable and can be more competitive. 2) Capability in gaining profits Insurance is a business that requires high capital investment with high costs in management and marketing 54

55 schemes, resulting thus in low margins. These attributes do not attract investors who seek profit from their investments. Motor insurance, accounting for 60% of total non- life insurance, has a loss ratio of almost 60% while non- motor insurances such as fire insurance, marine and cargo insurance, miscellaneous insurance, has a lower loss ratio, but accounts for only 40% of total non- life insurance. With motor insurance contributing to a high percentage in non- life insurance, underwriting gains for the Thai non- life insurance are not exceptionally high due to the nature of motor insurance being short- term policies that does not allow the opportunity to seek investment in written premiums like long- term life policies. To rely on motor insurance as their primary source of income, insurance companies place emphasis on the quantity of underwritings obtained in order to offset the amount of indemnities that need to be paid. As a result, insurance companies focus less on the selection of quality underwritings with not enough importance given to developing the quality of personnel, improving their knowledge, skills and monitoring their professional conduct. Companies engage in price competitions introducing rates or commissions higher that legal standards, reducing claims and indemnities to a minimum, delaying or even refusing payment of claims or indemnities Vital infrastructure for the development of the insurance industry The insurance industry needs fundamental infrastructure in developing the insurance system consisting of accounting standards, a reliable database in underwritings, risk assessment, qualified personnel in actuaries, loss adjusters, non- life assessment, including auditors with skills and knowledge on insurance. 55

56 The lack of qualified personnel is one major problem in the insurance system as the business requires specialized experts in insurance administration, legal insurance advisers, qualified underwriters, insurance auditors, insurance intermediaries, etc who have the knowledge, in depth understanding, and expertise to perform their duties with efficiency. Furthermore, certain insurance specialists are required to complete specific courses such as actuaries who play a key role in the insurance industry. They are responsible in submitting data analysis to quantify risks, ensure that risk management operations adhere to actuarial science, as well as assisting companies in implementing policies and procedures to mitigate risks in various aspects of their operations. According to the Life Insurance Act 1992, amended in 2008, and the Non- life Insurance Act amended in 2008, actuaries are required to possess the following qualifications: 1. Completed actuarial science or comparable education with syllabus or courses specified by the insurance regulator, from an academic institution recognized by the Ministry of Education with experience in actuarial work or statistics relating to insurance of not less than 5 years, OR 2. Be a fellow of the Actuarial Association that is approved by the OIC. By 2016, actuaries responsible in certifying life insurance policies are only required to possess qualifications specified in Clause 2. On the other hand, actuaries certifying non- life insurance policies are exempted from the rule, enabling them to perform their duties until February Hence, while there is a demand for more actuaries in the 56

57 Insurance industry, there are presently only 7 universities offering a syllabus in insurance actuarial science Domestic Competitiveness Insurance is financial and investment services that presently face domestic and international competition as well as competition from other financial and investment sectors. Financial stability, quality services, and reliability are critical success factors (CSF) in the financial business. Hence, it is vital that insurance associations and business institutions, insurance companies, agents and brokers, strengthen their competitive level in their business operations in order to gain public trust and confidence, portraying financial stability and liquidity, and quality services both before and after sales. A wide selection of insurance products that fulfill the needs, demand and risk factors are as important as the cooperation in building a foundation that serves as a platform for international competitiveness in innovative insurance products, new distribution channels, improved services, as well as the development of effective and quality management system that meet international standards. 2.2 Challenges of Thai Insurance The insurance industry faces many internal factors hindering the full development of the business as well as external factors including the social, economic, political and legal aspects. Significant changes toward globalization and world economic system have repercussions on the insurance industry as well, factors which are outlined as follows: 57

58 2.2.1 World Economic System Significant changes in the world economic system can have positive and negative effects on the development of the Thai economy as well as on the future of the Thai insurance industry. Changes include: 1) Regional economic formation The formation of regional economic groups will lead to more enhanced network, efficient integration and overall cooperation between specific geographic areas. Economic integration has the objective of strengthening the power and capacity of economic groups to compete in world markets. The economic integration of the Asian region such as the Greater Mekong Subregion (GMS) and the Asean Economic Community (AEC) has optimized cross- border transport links, telecommunications, electricity and energy power network systems, as well as opened up trade and investment opportunities and helped generate income to neighboring countries, bringing about increasing economic growth and negotiating power in the world forum. 2) Asia and its role in the world economy The world economic crisis in September 2008 has led to significant global financial and economic changes, primarily the decline in US power status, with economic power shifting to the Asian region steadily guided by China and India. It is estimated that total GDP of countries in Asia will account for more than ¼ of the world, or about half of the world s purchasing power. Besides Asia, Brazil and Russia have shown high potential in economic expansion. Thailand on the other hand, has a strong fundamental infrastructure that could enable the country to be the center of finance, investment, production and trade, linking to the economic hub on the Asian region. 58

59 3) Financial supervision The collapse of financial institutions in 2008 was contributed partially to the laxity in the supervision and the permission given to financial institutes, insurance companies and banks to do cross businesses as well as the relaxation of rules governing business and financial operations. Following the crisis, many financial institutions and central banks imposed stricter supervisory measures and sought to mend loopholes that exist in the financial supervision framework. As well as rules and regulations. Moreover, regulators should increase more cooperation in exchanging necessary data and information, build a financial supervisory system on the macro prudential and micro prudential level to incorporate activities, markets and other financial institutes and supervise an appropriate governance in the financial sector. 4) The agricultural sector As a major agricultural producer, Thailand is able to strengthen its agricultural sector by seeking ways to add value to its products, increasing farmers income, and bringing about a better quality of life. With the constant decrease in agricultural production due to natural disasters such as floods and heavy monsoons affecting the world food stability long term, Thailand has sought to allocate more land to agricultural crops that can be transformed to alternative energy which would contribute to long- term energy security and environmental stability. 59

60 2.2.2 Technology Change Advances in modern technology have led to the rapid transformation in the way people all over the world lead their lives. Technology has become a means people use to improve their surroundings and accomplish their tasks more efficiently. Information technology such as the Internet and cellular phones is highly efficient and cost effective, enabling worldwide communication that is fast, reliable and secure. Incorporating telecommunication devices and modern technology to the insurance business has become essential in improving overall administrative and financial management, increasing the opportunity for global business competitions. Information and Communication Technology (ICT) is vital in developing trade and services to an e- commerce and global networking system, linking all sectors of insurance and endeavoring to provide increasingly better service to all areas of the business from management, development of new insurance policies and insurance products, quality services to the public, as well as increasing the level of business competition. ICT is an important factor in internal management, market expansion, and distribution channels as well as after- sales services. Companies who place emphasis in incorporating ICT in their network operations have competitive advantage, systemized management control and better services. At present, small - scale life and non- life insurance companies in Thailand are unequipped with advanced and complex technologies, lack in an efficient networking system between the main office and its branches, thus presenting an obstacle in developing the insurance industry into a modernized data warehouse. With an information network system that is constantly up- to- date, the life and non- life insurance can be further developed and expanded, enabling the Thai insurance system to meet the challenges of present- day technology. 60

61 With the rapid changes where technology is taking a leadership role in shaping the world, ICT has become an essential investment and a key contributor to business success Consumer Behavioral Change The global economic recession that occurred after the sub- prime real estate crisis significantly affected millions of people worldwide who had to change their spending habits in order to cope with the economic downturn. These behavioral changes have influenced the insurance sector in several ways: 1) Consumers place more importance on their savings in order to seek financial stability. The increase in savings rate is clearly evident especially in the US with a 4.2% increase during the first quarter of 2009, the highest since Thailand s savings rate in the domestic household in 2008 was estimated at 3,691 baht per household, an 11.26% decrease from 2007, primarily due to the decrease in domestic household income. 2) Consumers decrease their spending and learn to prioritize their expenses by being cautious, less extravagant and more selective. 3) With advances in modern health and nutrition as well as the population s gradual progress into the aging society, health products are gaining more popularity by consumers at large. The insurance industry needs to examine the current consumer behavioral changes in order to develop protection policies that meet the growing changes. Insurance policy written documents must be clear, concise and precise. The 61

62 description and summary of insurance coverage must clearly state the risks, benefits, limits, terms and conditions in all clarity, with policy specifications conforming to actual risks Demographic change Modern advances in health and nutrition have led to the rapid increase of the aging society in the world today. It is expected that in the next years, the 60 years and over population will increase from 10.3% in 2005 to 15% in 2025 and 20.4% in Consequently, governments of several countries need to seek foresighted measures to cope with the growing trend. Thailand is entering into the aging society. It is expected that in the next 2 decades, the Thai population over 60 years will account for ¼ of the country s total population, from 7.14 million people or 10.8% in 2007 to million, or 22.7% in By 2035, Thailand will officially reach the aging society, while the young and the working age will decrease respectively. Estimation of the Thai population Age Total Population 56,969 65,099 66,041 68,980 Increase Rate (%) years 14,029 14,950 14,522 12,870 Percentage years 37,446 43,492 44,372 46,291 Percentage years and above 5,495 6,757 7,147 9,819 Percentage Birth rate Average age

63 The increase in the number of the aged and the elderly has an influence on the government s policies on social services, savings, taxation and healthcare. It is important that related agencies encourage the public to engage in a long- term savings plan to ensure sufficient income after retirement. The aging society in Thailand and the role of insurance With the gradual increase of Thailand s aging society, it is vital for all sectors to devise ways to create sustainability and income stability for the retired and the aged, thus helping alleviate the burden of the government in taking care of the elderly society in Thailand. The insurance sector can play a major role in improving the quality of life of the aged by promoting long- term savings system that provides retirement pension, health and medical expenses, with contractual savings that ensures coverage and offers attractive protective schemes and benefits. With these considerations, the Thai government fully supports the development of life insurance as a disciplined form of savings that secures income to individuals and family members and creates adequate income after retirement. At present the Thai population are not taking full advantage of the benefits of the insurance system, as indicated in the percentage of life insurance policyholders accounting for only 25.37%. This can be attributed to several factors namely the public lack of knowledge and understanding about insurance, insurance companies lack of tax incentives to develop new products, the lack of suitable channels in providing the people with access to long- term savings schemes, and the lack of good public relations on the benefits of insurance. In order to develop the Thai insurance system to greater heights, the cooperation of the public and the private sector as well as related agencies is necessary to 63

64 help promote an awareness on the importance and benefits an insurance system can have on the well- being of the people Global Warming Unpredictable weather has become a challenge to the growth and development of countries around the world. It is projected that in the next years, every country including Thailand will face extreme weather changes causing serious physical and environmental consequences. To seek precautionary measures to global warming, many countries are investing in ways to reduce the damages it may cause. In effect, global warming has now become one of the biggest issues facing the world today, affecting trade and investment, altering social and economic directions as well as the quality of life of the people. Effects of global warming Increasing world temperatures and current sea level will lead to unpredictable weather changes and increase intensity of natural disasters which will cause severity of loss and damage to the environment, to properties and to the general livelihood of the people. Natural occurrences that have definite effects on the insurance system are: 1. Frequent forest fires Drought and rising temperatures are the causes of increasingly frequent forest fires damaging properties, the environment and the social and economic aspects of the country. 2. Severe and unpredictable natural disasters Global warming is the cause of frequent and severe natural hazards and disasters such as floods, hurricanes, drought, causing tremendous economic loss. 64

65 3. Unpredictable weather and natural hazards strongly affect the agricultural production in many areas in the world Years of extreme drought in Australia has damaged the wheat production, causing drastic price increase in the world market, leading people to turn to rice consumption as an alternative. In China, severe floods in 2007 and persistent snow covering vast areas of the country critically affected rice production, while in India, severe drought damaged the country s agricultural production. Vietnam on the other hand, was affected by a persistently long winter and pest and diseases damaging its rice crops. These three countries were major rice producers in the world who, in early 2008 had to reduce their exports in order to reserve their crops for domestic consumption and to secure national food market stability. Climate change in Southeast Asia Climate changes in Southeast Asia have significant effects on the region, with an expected 6% in damages to its GDP in the next 90 years. Financial support and technology exchange is deemed essential in dealing with the climate change through stimulating economic growth, increasing employment, reducing poverty, reducing air pollution, and preparing for the harsh weather and climate changes. Climate change in Thailand Thailand weathers climate change in various forms including severe drought, floods, and cyclones. According to the 2008 Annual Report of the Royal Thai Government under the Department of Disaster Protection and Mitigation (DDPM), damages from floods, drought, and other disasters between was estimated at 63.9%, 19.0%, and 17.1% respectively. Building resilience to climate change 65

66 involves governance and planning mechanisms from 1) devising policy and operation schemes on disaster relief and 2) formulating regional and national framework for the protection and alleviation of natural disasters. The Thai government adopted the Hyogo Framework for Action; a policy document highlighting the continuing need for disaster risk reduction to be integrated into governmental policies, and with the cooperation of various sectors, a Strategic National Action Plan was drafted and approved on March 24, In addition 50% of the DDPM s budget has been allocated toward strengthening protective and reduction measures in coping with impacts of climate change, as well as implementing a catastrophe risk management system. To render financial support in insurance protection from widespread flooding in vast areas of the country, Thai insurance companies paid indemnities in 2008 for torrential rains and floods totaling and million baht respectively. With losses and damages estimated at 441 million US dollars, the Thai public and private sector provided financial assistance of 15 million US dollars each in a joint effort to alleviate the national plight in addition to insurance bonds and catastrophe bonds bought at 176 and 235 million US dollars respectively. It is Research and data compilation, devising rules and regulations Global warming crisis and opportunities of the insurance industry. Global warming is a main factor contributing to the numerous natural catastrophes that have caused damage to several regions faced with extreme drought, floods, earthquakes, volcano eruptions, in addition to severe maladies and new illnesses that have spread throughout the world. On the other hand, global warming has led to the emergence of various new development projects such as the 66

67 development of renewable energy, clean energy and agricultural development in increasing world food production. These advancements are instances of crisis and opportunity for the insurance business; Companies should build an understanding and closely monitor the current situation so as to be prepared to meet the challenge of changing climates and unpredictable weather which can have social and economic repercussions as well as effects in production, trade and services, and the overall well- being of the world community. Damages from the tsunami in 2004 resulted in payment of indemnities estimated at 7500 million baht, a catastrophe that raised awareness among the Thai people on the availability of insurance protection from natural disasters under the Fire Policy and Property All Risks policy. While damages from floods pose an important problem due to the lack of flood mapping and flood modeling, the Thai government compensates cyclones and typhoons. At present, with Thai non- life insurance relying heavily on reinsurance, especially the protection of natural catastrophes, risk pooling could be an alternative for insurance government projects covering natural disasters. As the opportunity presents itself, the insurance business has devised the following strategic schemes: 1. Develop insurance products that protects from damages caused by environmental changes brought about by global warming, i.e. severe drought, floods, illnesses. 2. Develop insurance products that protect and build stability for various development projects aimed toward reducing global warming such as developing alternative energy, developing clean energy sources, and increasing food production. 3. Encourage the public to purchase fundamental insurance policies, with the possibility of using housing 67

68 premium as coverage for typhoons, floods, and earthquakes with tax deductible for personal income tax. 4. Catastrophe fund With global warming being the cause of frequent and strong natural hazards affecting vast areas of the world, the cooperation between the government and the insurance sector is necessary to reduce and manage risks from these global natural disasters. Proposals are made for the government to establish a catastrophe fund to assist the public from loss and damages, while the insurance sector should establish a catastrophe reserve with tax exemptions granted as an incentive scheme. In addition, the natural disaster early warning system is an efficient and effective tool to provide early detection and reduce the toll of natural hazards. Hence, it is vital to gain crucial support from the government in establishing a natural disaster early warning network. 5. The utilization of CAT- linked financial instruments will increase insurance underwriting capabilities and create a tool for the government to transfer risks. 3. Liberalization of Thai Insurance The liberalization of Thai insurance is formulated under the framework of the World Trade Organization (WTO) and the Asean Economic Community, with liberalization having taken effect on two stages, namely: First stage Grant permission to operate its insurance business to 25 insurance companies (12 life insurance companies and 13 non- life insurance companies) Second stage 2008 Relaxation on foreign shareholding of insurance companies from 25% to 49% 68

69 1) The Thai schedule of specific commitments under the WTO framework for 6 sectors of insurance are 1) Life Insurance services 2) Non- Life Insurance services 3) Insurance Broking and Agency services 4) Insurance consultancy services excluding pension consulting services, 5) Average and Loss Adjust services and 6) Actuarial services The proposed schedule of specific commitments bases its the principle on the capacity to conduct its operations according to present regulations, subject to extreme caution not to be bound beyond limits so as to affect the domestic insurance business. Presently not ready to compete with developing countries, the liberalization of Thai insurance is limited to existing 6 specific sectors as follows: 1) Life insurance No limitation on market access for the operation of cross border supply or consumption abroad, but commercial presence is permitted for joint ventures with existing insurance firms and foreign equity of not more than 25% of registered capital. Foreigners providing services in Thailand, senior managerial personnel specialists and technical assistance with the approval of the Insurance Commissioner. Limitation on national treatment allow holders of policies issued by Thai insurance companies to obtain tax deductible from life insurance premium (not exceeding 100,000 baht) 2)Non- life insurance Cross border supply is unbound except for international marine, aviation and transit, and reinsurance, while joint venture with existing companies in Thailand is permitted, with foreign equity limited to not more than 25% of registered capital. 69

70 3) Insurance Broking and Agency services Under the Life and Non- life Insurance Act, brokers shall not induce, advise or do any acts so as to cause any person to enter into insurance contracts with insurers abroad, except for reinsurance contracts. Equity participation is permitted not exceeding 25% of registered capital, with foreigners not permitted to act as insurance agent or broker in Thailand 4) Insurance consultancy services excluding pension consulting services No limitation on market access in cross- border supply, however establishing businesses in Thailand is required to be corporate, with foreign equity not exceeding 49% of registered capital. Foreigners providing services in Thailand, senior managerial personnel, specialists and technical assistance with the approval of the Insurance Commissioner. 5)Average and Loss Adjustment services same requirements as no. 4 6) Actuarial services same requirements as no. 4 (2) Insurance liberalization under the AEC (Asean Economic Community) framework The AEC is comprised of 3 main pillars namely the Asean Security Community (ASC), the Asean Economic Community (AEC) and the Asean Socio- Cultural Community (ASCC). The AEC has set objectives for Asean 2020, envisioning the Southeast Asian region to be characterized with strong economic growth and able to engage in dynamic competition with other regions by fulfilling 4 objectives outlined as follows: 70

71 - stimulate the liberalization of trade and services, investment and capital, reduce poverty and socio- economic disparities by year transform Asean into a single market and production base. - Develop Asia into a highly competitive region of equitable economic development - Develop the Asian region into one that can fully integrate with the global economy The Asean Socio- cultural community recognizes the need to enhance environmental sustainability with fully developed mechanisms governance in the management and protection of the environment from unpredictable occurrences. The AEC stipulates the conditions and addresses direction in developing the Asean region pertaining to multilateral agreements in the management of natural resources to cope with changing environment. Under the framework of the AEC, Thailand has a timeline to liberalize the insurance business by year (3) Liberalization under the bilateral and multilateral framework. 1) ASEAN Australia, New Zealand Free Trade Agreement (AANZFTA) - Under this framework, Thailand s commitment in the financial services sector is equivalent to its commitment to the WTO 2) ASEAN European Union Free Trade Area: AEUFTA 71

72 - Currently no negotiations on the Thai financial sector. The AEUFTA framework has been approved by Parliament with negotiations on liberalization to be conducted on a gradual basis. With Thailand s financial sector having a lower potential than European countries, there is presently no requests, unless specified. Offers will be equivalent to the WTO framework. 3) ASEAN Republic of Korea Free Trade Area Agreement: AFFTA - Under this framework, Thailand s commitment in the financial services sector is equivalent to its commitment to the WTO. 4) ASEAN India Free Trade Agreement: AIFTA - Negotiations on trades and services under this framework will be summarized by August Asean and India are in the process of initial offers, while Thailand s initial offer in the financial sector is equivalent to the WTO. 5) ASEAN China FTA No negotiations on the financial sector 6) Thailand Australia Free Trade Agreement : TAFTA - Under this framework, Thailand s commitment in the insurance sector of the financial services is equivalent to its commitment to the WTO. 4.Vision and Mission 72

73 With the environmental issues, the present situation of the Thai insurance industry, and the current trends of insurance, there is a need to formulate visions and mission of the Insurance Development Plan between as follows: 1.1 Vision The Thai insurance system is an important mechanism in ensuring stability of all levels of society, to meet international standards and to be ready to face future challenges. 1.2 Mission The following mission has been outlined to be consistent with the vision of the Insurance Development Plan: 1) To strengthen confidence and access to the insurance system 2) To strengthen the stability of the insurance system t 3) To upgrade the quality of service and protection of policyholders interests 4) To promote the infrastructure of the insurance business The accomplishment of the mission outlined above will directly lead to the development of Thai insurance, as well as to the social and economic development of the nation as a whole. This is expected to reflect on the impact insurance has on different aspects of society: the growth and development of Thai insurance reaches a standardized level compared to the size of the Thai economy, and the public s increasing awareness in the importance of insurance will lead to the effectiveness of Thai industries and its ability to compete with other 73

74 regions. The Thai insurance industry is an important mechanism in building stability in life and assets of society, which will in turn lead to long- term growth and prosperity of the Thai people. Vision The Thai insurance system is an important mechanism in ensuring stability of all levels of society, to meet international standards and to be ready to face future challenges. 74

75 Chapter 3 Pillars of Insurance Development Plan Volume 2 With the growing importance of the insurance system and the status of the Thai insurance industry as discussed in Chapters 1 and 2, it is clear that currently, conditions and various infrastructures of the Thai insurance industry still need to be enhanced in several aspects in order to capitalize its potential.. With the assistance of insurance public and private sectors in the administrative level and insurance experts from well- known academic institutions, valuable opinions and recommendations have been contributed to improve the Thai insurance infrastructure through the establishment of 4 main pillars and 18 important measures as follows: Pillar 1 To build more confidence and awareness on the importance of insurance as well as better insurance access for the people 1.1 Educate people on the insurance system 1.2 Develop insurance products to meet the social, economic, environmental and technological changes of the people. 1.3 Develop distribution channels and service systems 1.4 Establish codes of best practice for insurance intermediary 1.5 Strengthen the role of the insurance system in corporate social responsibility (CSR) 75

76 Pillar 2 To strengthen the capacity of the insurance system 2.1 Strengthening the insurance system Audit and supervision of insurance companies through Risk- based Supervision (RBS) - Initiate new ways in analyzing and auditing insurance companies - Seek additional means for Prompt Preventive Actions Use Risk- based management and Risk- based Capital Regime - Promote investment of insurance companies - Comply with Risk- Based Capital Approach - Risk management Preparation of insurance companies for transformation into a public company and persuasive measures for acquisition Group- wide supervision Anti- money laundering and combating the financing of terrorism 2.2 Build insurance company s capacity for competition Insurance product development process Reduce insurance costs Strengthen the capacity for insurance retention Implement measures to prepare the insurance business for free trade in ASEAN by year 2020 Pillar 3 To improve the standard of service and protection for policyholders interests 76

77 3.1 Reform laws concerning policyholders protection 3.2 Implement standardized rules of conduct in insurance services 3.3 Improve quality of insurance beneficiary services 3.4 Establish a catastrophe fund Pillar 4 To promote the infrastructure of insurance 4.1 Strengthen the human resource capacity in the insurance business 4.2 Improve the tax system for the development of the insurance business 4.3 Set guidelines for product development in the capital market for insurance business 4.4 Operate according to standard accounts and asset evaluation 4.5 Strengthen the IT capacity 4.6 Reform insurance laws 4.7 Establish the OIC Advanced Insurance Institute PILLAR 1: TO BUILD MORE CONFIDENCE AND AWARENESS ON THE IMPORTANCE OF INSURANCE AS WELL AS BETTER INSURANCE ACCESS FOR THE PEOPLE The initial stage in developing the Thai insurance system is to gain general acceptance from the public as a whole that the insurance system is a vital tool in providing security in life and properties as well as in helping strengthen the social 77

78 and economic system of the country. Measures consist of the following: Formative measures 1.1 Educate the public on the insurance system In order for the public of all social levels and age group to gain knowledge and understanding on the importance, need, and value of having insurance policies to the extent of being integrated in the general conscience and culture of the people, there is a need to educate the public on the principles of insurance and savings by various informative channels that can access to all target groups. Measures include: Provide information and knowledge of insurance and savings through the life insurance system by using appropriate promotional materials that are efficient and effective. Main target groups include: * Fundamental group Provide information and offer knowledge on insurance and savings schemes through the life insurance system, reaching out to those living in towns and districts via local media networks such as community radio broadcasts, cable television, community leaders, insurance volunteers, or through corporate social responsibility (CSR) projects of the business insurance sector. *Youths/ high school and college students Disseminate and provide information to youths/high school and college students on insurance and savings schemes through the life insurance system via influential media networks, television or radio personalities who can stimulate this target group to see 78

79 the importance of securing a future with life insurance coverage. *Middle income/working group Educate and provide information on insurance and savings schemes through the life insurance system via various forms of media such as radio and television broadcasts, information pamphlets, published documents, as well as through insurance brokers, agents, and bancassurance - Public and private networks through various public relations projects headed by the Department of Labour Protection and Welfare, Department of Local Administration Promotion, The Thai Chamber of Commerce, Federation of Thai Industries, the Cooperative Promotion Department, etc. *High Income group Instill an understanding on the importance and benefits of insurance, and how life insurance is an important part of a good savings plan. The main focus is to demonstrate that insurance could provide security in future investment, while building a good and solid quality of life Building an insurance- based culture tradition for youths It is important that the educated young Thai generation have a true understanding of insurance and how a good savings plan can be a solid basis to the future of the country. Measures include: Provide an understanding and build an awareness on the importance of insurance and the need for a good savings scheme. Basic knowledge and concepts of insurance should be included in the elementary and secondary academic curriculum by coordinating with The Ministry of Education in 79

80 creating educational activities based on insurance. Young students can be educated on types of insurance that could reduce risks in their daily lives such as the compulsory third party motor insurance, life insurance, fire insurance, and the voluntary motor insurance, through organized school activities and contests, with prizes given to schools and students in insurance youth programs. Promote the inclusion of a curriculum on insurance, actuarial science, and risk management in secondary and vocational schools. 1.2 Develop insurance products to meet the social, economic, environmental and technological changes of the people The Thai insurance industry is marked with gradual growth and development over the years, but still considerably small compared to the size of the country s economy. The world financial crisis occurring during the last quarter of 2008 consequently resulted in Thailand s GDP to contract 2.7% in Despite the overall decline of the Thai economy in 2009, the insurance business on the other hand, continued to grow and expand at a steady pace. Direct premium in 2009 was estimated at 368,770 million baht, a 11.78% increase from the previous year, with 258,545 million baht in life insurance premium and 110,225 million baht in non- life insurance premium. Unfortunately, the Thai insurance industry is still relatively small, with a limited number of insurance products when compared with products of other financial sectors. The nature of insurance products 80

81 being complex and intricate has added to the inability of the Thai insurance industry to merit the attention it deserves. At present, the Thai population that holds insurance policies account for a mere 25% of total population. Hence, in order to develop insurance products to better meet the needs and risks of people of all groups, particularly fundamental groups. The following measures are needed: Study, promote and support the development of insurance products that meet public needs Promote and build an insurance based culture among people of all groups and age levels through the assistance of public and private network systems such as the Department of Labor Protection and Welfare, the Department of Regional Administration Promotion, the Thai Chamber of Commerce, and the Federation of Thai Industries Enforce mandatory insurance such as public liability insurance on businesses that cater to large groups of people such as movie theaters, entertainment complexes, concert halls, sports stadiums, mass transit transportation Enforce a fundamental insurance policy nationwide, such as flood insurance. 1.3 Develop distribution channels and service systems To facilitate and increase efficiency in offering insurance services and to better compete with other financial services while fulfilling the needs of the public and build upon their trust, the following measures have been devised: 81

82 1.3.1 Improve and revise insurance courses and regulations required by insurance agents/ brokers in obtaining licenses, as follows: - Micro Insurance - Insurance Advisor Increase insurance products distribution channels to effectively reach the public through service providers such as commercial banks, post office, counter services, convenience stores, and other community network systems. 1.4 Establish codes of best practice for insurance intermediary Set requirements, guidelines and appropriate conduct in selling insurance Implement ways to monitor sales through various distribution channels Revise legislation regarding the insurance intermediary and adjust the definition of insurance broker to specify qualifications with more clarity to increase efficiency in supervision 1.5 Corporate Social Responsibility (CSR) The role of insurance in society is to build stability in life and assets of the people, to alleviate financial burden in events of accident, loss or damage, and to assist those who would otherwise be a responsibility of the government or of society. Although the insurance business is a valuable social mechanism, it is nonetheless a private organization that grant indemnities to the public according to principles and conditions stipulated in the insurance protection policy. However, the lack of public understanding on the insurance system has led to the negative perception of the business when compared with the 82

83 banking system. Banks have been portrayed as a trustworthy and reliable establishment while insurance companies are seen as distrusting and questionable. Therefore, it is important to create a positive image of the insurance industry and simultaneously be involved in helping society through corporate social responsibility (CSR). Ways to make a significant contribution to society and help improve the quality of life of the people could include: - Encourage insurance companies to organize regular CSR activities that clearly demonstrate substantial contribution to society. - Establish a social fund or foundation dedicated to improve the welfare of the people. Expected outcome 1. Development of insurance products that meet the risks and needs of the public conforming to the environmental, social, economic, and technological changes. 1.1 Variation in insurance products according to the needs, risk and preferences of people of all income groups and professions. 1.2 Availability of insurance products for the fundamental group so they have access, gain protection, and benefit from the insurance system 1.3 The public seek to build their own stability through the insurance system and through life insurance savings schemes, people of all ages including the elderly have protection schemes with adequate income to secure quality living, while family institutions are strengthened, with the ability to develop efficiently and effectively. 83

84 1.4 Insurance serves as a mechanism in reducing public risk and contributes in alleviating loss and damage faced by society. 1.5 Domestic savings is increasingly attributed to the insurance system, with high percentage of savings accumulated from domestic household savings which can be invested toward the nation s social and economic development. 2. Development of distribution channels and services 2.1 Help insurance companies reduce their capital cost and increase distribution channels for middle income groups 2.2 Make insurance accessible to all household groups of the country through social networks that best reach the general public. 3. Educating the public on insurance 3.1 The public has an understanding and awareness on the importance of insurance and is able to select protective schemes that best suit their risks, needs, and preferences. 3.2 The public understands the principles of insurance, is aware of his binding rights, and is capable of protecting their own benefits. 3.3 The public and various social groups understand the insurance system and has the ability to monitor, examine, promote or engage in social sanctions to ensure the transparency and quality of the business. 4. Building corporate social responsibility toward Thai society. 4.1 The insurance business conducts its operations with responsibility, transparency and adhering to codes of best practice. 84

85 4.2 The insurance business has a good image and is trusted by the Thai public 85

86 PILLAR 1. TO BUILD MORE CONFIDENCE AND AWARENESS ON THE IMPORTANCE OF INSURANCE AS WELL AS BETTER INSURANCE ACCESS FOR THE PEOPLE Operation Plan 1.1 Educate the people on the insurance system Educate the public on insurance and savings scheme through life insurance Target groups include: Fundamental group - Disseminate information through cooperative network,local radio broadcasts, - Disseminate information through community leaders, insurance volunteers, provincial authorities - Create a social network system with the assistance of the Department of local administrations, various local associations and district authorities - Coordinate with various departments in creating educational activities promoting knowledge on insurance - Organize/schedule activities/ publish educational pamphlets - Participate in activities/ give lectures - Evaluate/ conduct survey - Coordinate with related organizations in selling insurance products suitable to public needs - Summarize above operations / submit report - prepare operation plan for the 86 Time frame by 2010 continuous Dec 2009 Jan- Mar 2010 May Nov 2010

87 following year Dec 2010 * Young youths, high school and college students Incorporate useful information on insurance through media network and via radio and television personalities i.e. singers, actors, entertainers *Middle income/working group public relations through various media network: - radio, television, cable television, printed matter, brochures, electronic mail, as well as through insurance brokers, agents, and bancassurance - build an understanding about public and private network systems with the following groups: 1. employees /workers - establish a network system by coordinating with the Department of Labor Protection and Welfare the Department of Skills Development,etc - coordinate with the Department of Labor Protection and Welfare in areas 1-10 and the Department of Skills Development to organize activities and set up courses offering basic knowledge on insurance - organize/schedule activities/ publish manuals about insurance - coordinate with OIC provincial offices to cooperate and participate in organized activities - participate in activities/give lectures - evaluate/conduct surveys - engage in the promotion and sale by 2010 Dec 2009 May 2010 June 2010 June

88 insurance products that meet customers needs - summarize above operations/ submit report - prepare operation plan for the following year 2. entrepreneurs /factory owners - create social network through an MOU with the Ministry of Industry (May 2010), Federation of Thai Industries and the Thai Chamber of Commerce (Dec 2009) - engage in cooperation with these organizations nation- wide to promote knowledge and information on benefits of insurance - organize/schedule activities/ publish educational pamphlets - coordinate with OIC provincial offices to cooperate and participate in organized activities - update news and information on activities related to insurance to members through - participate in activities/ give lectures - evaluate/conduct surveys - engage in the promotion and sale of insurance products that meet customers needs - summarize above operations/submit report - prepare operation plan for the following year 3. state enterprise employees - coordinate with state enterprise agencies under the Finance Ministry and other state enterprises in promoting knowledge on Nov 2010 Dec 2010 by 2010 April 2010 Mar 2010 May 2010 May 2010 June Nov 2010 Dec

89 benefits of insurance - organize/schedule activities/publish educational pamphlets - participate in activities/ give lectures - evaluate/conduct surveys - engage in the promotion and sale of products that meet customers needs - summarize above operations/ submit report prepare operation plan for the following year *high income group emphasize presenting an in depth understanding on the benefits of insurance 1. building owners/corporate owners cooperate with the Department of Public Works and Town and Country Planning and Bangkok Metropolitan in promoting knowledge, information and benefits of insurance - organize/schedule activities, publish educational pamphlets - participate in activities, give lectures - evaluate/ conduct surveys on customers needs - engage in the promotion and sale of insurance products that meet customers needs summarize above operations/submit report - prepare operation plan for the following year 2. Investors/owners of transport companies - create s social network through an MOU with the Board of Investment of Thailand Apr 2010 May Nov 2010 Dec

90 - engage in cooperation in activities that promote knowledge and benefits of insurance - organize and schedule educational activities/publish educational pamphlets - coordinate with OIC provincial offices in organizing insurance promotion activities - participate in activities/give lectures - evaluate/conduct surveys on customers needs - engage in the promotion and sale of products that meet customers needs - summarize above operations/submit report - prepare operation plan for the following year Create an insurance- based culture among youths * integrate insurance courses into secondary, vocational and college education and organize educational activities promote insurance- based activities in schools, with contests and awards given to schools and students under the Insurance Youth project - encourage target groups to join various projects organized by the Office of Basic Education Commission, the Department of Education, Bangkok Metropolitan Administration, the department of vocational schools, etc - schools/academic institutions revise their curriculum to incorporate insurance courses with the assistance and advice Mar 2010 May 2010 June 2010 June Nov 2010 Dec Jan- June

91 from OIC provincial offices - schools/ academic institutions and students enter provincial project contests - provincial judges select winners and award prizes to schools/ students - regional judges select winners and award prizes to regional contest - award- winning schools/ academic institutions /students in Bangkok and 7 other regions - national winners receive awards in insurance prime minister s award ceremony - evaluate/summarize report of annual project May- June 2010 June- July 2010 July 2010 July- Aug promote the inclusion of insurance and risk management courses in universities of international standards or equivalent - coordinate with related organizations to set up standardized insurance management courses - include insurance management courses in OIC Advanced Insurance Institution Educate and provide information on benefits of insurance to related organizations such as the Engineering Institute of Thailand (loss adjuster and surveyor) - provide knowledge and understanding of codes of conduct of loss adjuster and surveyor in conformance with the Non- Life Insurance Act B.E. 2535, amended B.E Aug 2010 Sept 2010 Sept- Oct

92 1.2 The promotion of insurance products that meet the social, economic, environmental and technological changes of the people Study, encourage and promote the development of insurance products that meet public needs such as: - Micro- Insurance - Takaful - Participating Policy Promote insurance- based culture among the general public of all levels nation- wide via public and private sectors such as the Board of Investment of Thailand, the Department of Welfare and Labor Protection, the Department of Skills Development, the Department of Public Works, Town and Country Planning,, the Provincial Administrative Council of Thailand, the Department of Local Administration, the Sub- district Administrative Organization, the Thai Chamber of Commerce, and the Federation of Thai Industries Establish insurance legislations to support compulsory insurance on business enterprises and business owners - Create public liability insurance project legally compulsory for the following types of businesses: 1. entertainment establishments as stipulated by the Ministry of Interior 2.Business enterprises type 3 pertaining to petroleum gas (LPG/NPV/CNG) as stipulated by the Ministry of Energy 3. Business enterprises engaged in the

93 transport of hazardous materials by sea, as stipulated by the Marine Department Expand scope of insurance to support fundamental insurances such as flood or drought insurance 1.3 Develop distribution channels and service systems Revise and improve insurance courses and regulations for new licenses issued to insurance agents/ brokers as follows: - Micro- Insurance - Insurance Advisor Seek new distribution channels to better reach the public such as commercial banks, post office, counter service, convenience stores, as well as community and social networks 1.4 Establish codes of best practice for insurance intermediary set requirement,guidelines, and appropriate conduct in selling insurance establish means to supervise sale of insurance through various distribution channels revise legislation regarding the insurance intermediary, adjust the definition of insurance broker to specify qualifications with more clarity to increase efficiency in supervision 1.5 Strengthen the role of insurance in corporate social responsibility(csr) Promote the insurance industry to take responsibility in corporate social

94 responsibility (CSR) through various means: - set up insurance projects to improve the Thai quality of life such as the Supporting Thai society project, Global Warming Relief project,and the Green Heart Project - Seeks ways for the Thai insurance industry to establish a foundation or a fund aimed at helping contribute to the well being of the Thai people - Present a positive image of the insurance industry through insurance projects established to improve the quality of life of the Thai people (continuous) 94

95 PILLAR 2 TO STRENGTHEN THE CAPACITY OF THE INSURANCE SYSTEM Measures outlined in Pillar 1 serve as guidelines in strengthening public trust and confidence in the insurance system. However, having an insurance system that is financially secure, effective and prepared to address challenges ahead is the key to an industry worthy of public trust. To achieve these goals it is vital for the insurance industry to have a strong regulatory system based on Risk- based supervision wherein insurance companies are to meet with the following criteria: 1. Companies are required to demonstrate capital adequacy 2. Companies are required to have an effective risk management system 3. Companies are required to employ effective management as well as corporate governance. In addition, it is necessary for insurance companies to increase the ability to compete in the global marketplace and to prepare for future liberalization. Measures to strengthen competitiveness are outlined as follows: Formative Measures 2.1 Strengthening the insurance system Audit and supervise insurance companies through Risk- Based Supervision (RBS) 1. Initiate new ways in analyzing and auditing insurance companies 95

96 1.1) set up a working committee to clearly define the framework of risk- based supervision of insurance companies 1.2) determine risk assessment framework, compile risk assessment data, formulate a risk matrix and a composite risk rating 1.3) designate duties to each sector of the OIC under the risk- based supervision and organize staff and personnel training to understand their roles and responsibilities. 1.4) revise procedures in the granting of approvals to insurance companies and to classify business risk assessment as a company risk. 2) Prompt Preventive and Corrective Actions 2.1 develop prompt preventive and corrective actions and early warning systems to address problems 2.2 define clear framework for intervention in circumstances of company violation of legal rules, regulations, codes of conduct that may affect the firm s financial stability ( For example, actuary s failure to submit assessment report) 2.3. grant authority to the OIC to halt issuance of insurance policies or terminate the operation of insurance firms that face financial risk or damage due to lack of efficient risk management systems, effective personnel, and violation of insurance rules and regulations Use Risk- based Management and Risk- based Capital Regime 1) Promote Investment of insurance companies 1.1) Adopt more standardized investment supervision of insurance companies to be consistent with risk- based capital approach, focus on comprehensive supervision, define 96

97 investment structure rather than impose restrictions on types of assets. 1.2) Impose rules and directions in company risk assessment pertaining to investments, including port of investment classified under investment products. 2) Maintain Risk- Based Capital Approach 2.1) Establish rules, methods, conditions to comply with risk- based capital, determine report format and revise methods of assessing capital reserve and assets to conform with the International Association of Insurance Supervisors (IAIS) and the International Financial Reporting Standards(IFRS), as well as revise format of actuarial science reports. 2.2) Prepare the insurance private sector to comply with risk- based capital by conducting parallel tests between ) Require insurance companies to have a risk- based capital according to devised framework by year ) Devise a supervisory framework in conformance with the Internal Model for Risk Based Capital. 2.5.) Require insurance companies to reveal necessary information for quantitative supervision namely technical risks, capital reserve assessment, comprehensive risks, capital reserve adequacy, insurance classification, work performance evaluation, and investment risks 2.6) Require companies to conduct a Dynamic Capital Adequacy Testing (DCAT) to determine that the company s financial stability reflects the quality of the company s risk management process. 97

98 2.7) Prepare data to improve Quantitative Risk Supervision namely insurance risks,market risks and credit risks to ensure adequate risk- based capital consistent with the company s risk management framework. 2.8) Set up training and personnel development programs of the OIC and the business sector to gain knowledge and understanding on measures and structures in risk based capital supervision. 3) Risk Management 3.1) Promote the adoption of Enterprise Risk Management (ERM) within insurance companies. 3.2) Ensure compatibility between enterprise risk management and risk- based capital 3.3) Develop measures in quantitative and qualitative risk supervision. 3.4) Encourage insurance companies to maintain corporate governance, compliance, transparency and disclosure, set out fit and proper requirements for administrative levels to ensure effective internal control Preparation of insurance companies for transformation into a public company and persuasive i measures for business acquisition Prepare insurance companies to legally transform to public companies limited by the following means: 98

99 1 )Define clear guidelines and steps in preparation for insurance companies to transform into public companies limited 2) Devise incentive measures and outline steps leading to business consolidation as well as discussing with the Excise Department on the revision of taxation laws to create fairness and equality Group- wide Supervision 1) Examine methods in group- wide supervision to ensure the smooth operation of the insurance business without supervision arbitrage. 2) reform laws granting the OIC with the authority to inspect insurance firms and related business corporations under the insurance group. 3) study and prepare for inspection and examination of business corporations by compiling data and reports Anti- money laundering and combating the financing of terrorism Cooperate with the AMLO (Anti- Money Laundering Office), with technical support from the International Monetary Fund, to devise measures and procedures in the prevention and protection of anti- money laundering and combating the financing of terrorism in the insurance sector. 2.2 Build insurance companies capacity for competition Insurance product development process 1) Developing insurance premium rates 99

100 1.1) revise insurance premium rates to be consistent with risk- based capital approach. Pricing is calculated based on best estimate assumptions by using company experience, industry average or outside information and for o life insurance only investment products are allowed. Encourage insurance companies to calculate loss and damages from the central data system and adjust figures according to company statistics, not exceeding rates set by the OIC for individual cases of non- life insurance Categorize insurance products according to market distribution; complex insurance products should be handled by insurance agents, less complex products by insurance brokers, and non- complex products can be sold though bancassurance, tele- sale, and credit cards. Micro insurance would require channels that can reach the public of all groups levels. 1.2 )A fixed commission rate will not be imposed on complex insurance policies, while non- complex policies will be given a commission rate celingto enable long- term business growth. For customers benefits, insurance agents and brokers are required to disclose their commission earnings on a given policy. 2) Developing insurance product supervision 2.1) Revise framework in granting approvals of insurance products by ensuring that types of insurance risks conform to insurance principles and actuarial principles. 2.2) Expand the File & Use insurance policy to cover non- complex products such as Term life 100

101 insurance, Whole- life insurance, Endownment insurance, and Accident insurance to enable companies to effectively develop and launch new products to the market. 2.3) Study ways to amend laws that promote Use & File insurance policy Reduce insurance costs 1) Reduce the amount of excessive written reports by adopting the paperless electronic reporting system to help reduce time and unnecessary steps in work operations unless specific cases arise. 2) If an operation is more economical for insurance companies, they may reduce insurance costs by outsourcing. However, in delegating outsiders,there must be additional risk management by insurance companies, In addition, insurance companies must require the company that is outsourced to write out reports and answer any questions inquired by the OIC. 3) Establish an Insurance Bureau for a centralized data system of the insurance industry Strengthen the capacity for insurance retention 1) Study and devise measures in increasing the number of reinsurance companies, registration and licenses in Thailand to increase the domestic capacity to conduct its insurance operations. Limit reinsurance ceded premiums, while transfer of technology is encouraged to lead Thailand to 101

102 become the center of insurance in the Lower Mekong Sub- Region. 2) Foster local insurance and reinsurance companies to play an administrative role and transfer public and disaster risks from the public sector to the insurance capital market 3) Amend Life Insurance and Non- life Insurance Acts Implement measures to prepare the insurance business for liberalization in ASEAN by 2020 Devise measures and outline policies toward the liberalization of the Thai insurance industry in order to better compete with foreign markets through risk- based capital frame work which will gradually take effect in Measures will be as follows: 1. Study insurance liberalization process, formulate a support plan with out- bound road maps to prepare for Thai insurance investment in the Asean region as well as in- bound road maps to prepare for Asean investment in Thailand. 2. Prepare insurance personnel and specialists with knowledge in insurance, foreign languages, as well as in information technology 3.Prepare to ensure competitive and efficient, management operations, management of distribution channels and after sales services. 4.Study concept of group- wide supervision for the enactment of laws and related measures. 102

103 5. Amend laws relating to the issuing of licenses to foreign companies Outcome 1. Strengthening the insurance system 1.1 Establishing clearly defined framework and directions in risk- based supervision and risk based capital will reveal the company s financial standing, allowing the possibility of examining whether the company has adequate capital reserve consistent with the risk level to support unpredictable events and to protect policyholders. In addition, it creates a clear depiction of the insurance cash flow, allowing company administrators to devise risk management policies in compliance with actual risks. This proves beneficial to companies with sound risk management policies and fast track procedures set in place and enables the OIC to use the statistical data to further improve the supervisory measures in the future. 1.2 Developing qualitative risk management will enable companies to have efficient and effective measures that ensure continual operation of important activities, reduce risk and possible unexpected loss, and maintain adequate capital. The OIC plays a vital role in assessing effectiveness and capabilities of insurance companies risk management without supervisory arbitrage. In addition, studies are being conducted in developing an internal model in liquidity risks and operational risks by taking in account both qualitative and quantitative risks. 103

104 1.3 The development of prompt preventive and corrective action and early warning system is an effective mechanism that can help address problems in a a timely manner, wherein the OIC can intervene in the event that companies are unable to underwrite or compensate. 1.4 Strengthen the financial stability of insurance companies and reduce the effect companies could face from group risks 1.5 Companies maintain effective risk management from investments that conform to business flexibility 1.6 Strict measures in controlling the operations of insurance brokers lead to fair and professional insurance services 1.7 Companies will transform to limited companies by 2013 and will become more standardized and professional 1.8 Consolidation of companies will lead to financial stability, the exchange of knowledge and technology between companies, advantages in economy to scale which will help boost the competitive level of Thai insurance companies 1.9 Create fairness and reduce tax issues obstructing the progress of Thai insurance industry 1.10 Effective protection of money laundering within the insurance industry. 2. Build insurance companies capacity for competition 2.1 The development in insurance premium rates and product supervision will indirectly lead to the variation of insurance products available, with companies ability to set a premium rate that is consistent with its real cost. Once the fixed premium rates operate according to marketing mechanisms, companies will be able to fulfill the demands of the public by promptly generating new insurance products to meet market demands. 104

105 2.2 Companies are able to effectively manage its resources, taking advantage of its own resources in principal activities that generate income, and using outsourcing services to reduce time and expenses in improving company database systems. 2.3 Once the Asean insurance industry is liberalized, the Thai insurance business will be ready to compete in the international level. 105

106 PILLAR 2. TO STRENGTHEN THE CAPACITY OF THE INSURANCE SYSTEM. Operation Plan Time Frame 2.1 Strengthening the insurance system Audit and supervise insurance companies through Risk- Based Supervision (RBS) 1. Initiate new ways in analyzing and auditing insurance companies. 1.1) Determine risk assessment framework, compile risk assessment data, formulate a risk matrix and a composite risk rating 1.2) Designate duties to each sector of the OIC under the risk- based supervision and organize staff and personnel training to understand their roles and responsibilities. 1.3) Revise procedures in the granting of approvals to insurance companies in conformance with RBS ) Prompt Preventive and Corrective Actions 2.1 develop prompt preventive and corrective actions and early warning systems (continuous) } 106

107 2.2 define clear framework of intervention in circumstances of company violation of legal rules, regulations, and codes of conduct 2.3. Grant authority to the OIC to halt issuance of insurance policies or terminate the operation of insurance firms that face financial risk or damage due to lack of efficient risk management systems, effective personnel, and violation of insurance rules and regulations Use Risk- Based Management and Risk- based Capital Regime 1) Promote Investment of insurance companies 1.1) Adopt more standardized investment supervision of insurance companies to be consistent with risk- based capital approach, focus on comprehensive supervision, define investment structure rather than impose restrictions on types of assets. 1.2) Impose rules and directions in company risk assessment pertaining to investments, including port of investment classified under investment products. } } } } } 2) Maintain Risk- Based Capital Approach 107

108 2.1) Prepare the insurance private sector to comply with risk- based capital by conducting a parallel test 2.2) Establish rules, methods and conditions in maintaining risk- based capital and determine type of report 2.3) Raise standards in assessing capital reserve and assets to conform with the International Association of Insurance Supervisors (IAIS) and the International Financial Reporting Standards (IFRS), as well as revise format of actuarial science reports. 2.4) Establish training and personnel development programs of the OIC and the business sector to gain knowledge and understanding on measures and structures in risk- based capital supervision. 2.5) Require insurance companies to reveal necessary information for quantitative supervision. 2.6) Improve data structure of various risks to conform to quantitative risk supervision framework 2.7) Prepare data and establish framework to conduct a Dynamic Capital Adequacy Testing (DCAT). 2.8) Devise a supervisory framework in conformance to the Internal Model for

109 Risk- based capital 2.9) Amend laws pertaining to the establishment of rights, roles, penalty, as well as qualifications of actuaries and accountants in calculating risk- based capital under RBC framework 3) Risk Management 3.1)Promote the adoption of Enterprise Risk Management 3.2) Study and develop methods in compiling data on risk management 3.3) Amend lawa and guidelines to be in conformance with Enterprise Risk Management (ERM) 3.4) Amend laws to allow the OIC to have control over corporate governance and Fit and Proper. 3.5) Set out criteria and improve guidelines regarding corporate governance, transparency,disclosure, and Fit and Proper Pending cabinet approval Preparation of insurance companies for transformation into a public company and persuasive measures for acquisition 1) Define clear guidelines and steps in preparation for insurance companies to transform into public companies limited )Devise incentive measures for business 109

110 merging - Study effects on tax and outline steps leading to business merging - Devise measures toward business merging Discuss with the Revenue Department on the revision of taxation laws to create fairness and equality Group- wide Supervision 1) Reform laws granting the OIC with the authority to terminate the operation of insurance firms that face financial risk or damage due to ineffective management systems 2)Study group- wide supervision measures 3) Study and prepare for inspection and examination of business corporations by compiling data and reports Pending cabinet approval Anti- money laundering and combating the financing of terrorism 1) Devise measures for insurance companies to exercise Know your Customer (KYC) and Customer Due Diligence(CDD) policies 2) Outline inspection procedures in the prevention and protection of anti- money laundering Build insurance companies capacity 110

111 for competition Insurance product development process 1) Developing insurance premium rates Revise insurance premium rates to be consistent with risk- based capital approach ) Developing insurance product supervision 2.1) Revise framework in granting approvals of insurance products to conform to insurance and actuarial principles - standard insurance policies - widely- used insurance policies 2.2) Expand the File & Use insurance policy to cover non- complex products to enable companies to effectively develop and launch new products to the market. 2.3) Study ways to amend laws that promote Use & File insurance policy Reduce insurance costs 1) Study ways for insurance companies to reduce capital costs arising from existing rules and regulations 2) Establish an Insurance Bureau for a

112 centralized data system of the insurance company 3) Devise rules, regulations, and criteria on line of work that can be outsourced. 4) Support companies to take advantage of available resources and expertise by promoting back office services such as damage inspection, services in claims, losses, etc Strengthen the capacity insurance retention 1) Study and devise measures in increasing the number of reinsurance companies, registration and licenses in Thailand to increase the domestic capacity to conduct its insurance operations. Limit reinsurance ceded premiums, while transfer of technology is encouraged to lead Thailand to become the center of insurance in the Lower Sub- Region 2) Foster local insurance and reinsurance companies to play an administrative role

113 and transfer public and disaster risks from the public sector to the insurance and capital market 3) Amend the Life - Insurance and Non- Life Act 3.1 Allow reinsurance between life insurance and non- life insurance in the cases of health insurance and accident insurance 3.2 Allow foreign reinsurance companies to establish representatives offices in Thailand to facilitate Thai companies dealing with overseas reinsurance companies. 3.3 Allow foreign registered reinsurers in Thailand to promote reinsurance market competition and support cooperation with foreign reinsurance companies (continuous) Implement measures to prepare the insurance business for liberalization in Asean by year Establish a sub- committee to prepare for insurance liberalization. - Devise measures and study concepts of insurance liberalization, formulate a support plan with out- bound road maps to prepare for Thai insurance investment in Asean as well as in- bound road maps to prepare for Asean investment in Thailand Seek insurance personnel and specialists with knowledge in insurance, knowledge in 113

114 foreign languages, as well as in information technology 3. Prepare to ensure competitive and efficient work operations, management operations, and management of distribution channels and after sales services. 4. Amend laws relating to the issuing of licenses to foreign insurance companies continuous 114

115 PILLAR 3 To improve the standard of services and protection for policyholders interests The quality of service and the protection of beneficiary rights have direct impact on the confidence and image of the insurance industry. In order to raise the standard of service and protection of public rights, the following measures have been outlined: Formative Measures 3.1 Reform laws concerning policyholders protection 1) Devise legal measures in the supervision of beneficiary rights by imposing, in addition to fines or jail time, limitations in business operations, restrictions in underwritings on certain insurance policies, non- approval of rates and terms of insurance policies, delay in approving new business investments, or the purchase of additional assets, order the cease operation of non- secure insurance companies, transfer company assets to OIC supervision or limit transfer of company assets, etc 2) Improve the efficiency and effectiveness of the Life insurance fund/ Non- life insurance fund: Article 84 of the Life Insurance legislation 1992 revised 2008 and Article 79 of the Non- life Insurance legislation 1992 revised 2008 dictate the establishment of the Life Insurance Fund and the Non- life Insurance Fund recognized by law as a juristic person, with the objective of assisting creditors entitled to repayment of debt in the event that an insurer s license is revoked and the company is thereafter liquidated. The intention of the new provision is to increase security and develop more confidence in the operations of the Thai insurance industry. 115

116 The establishment of the Life/Non life insurance fund has led to issues regarding the creditor s inability to recover debts immediately through the existing insurance fund due to long and delayed processes. In order for the insurance fund to serve its purpose in helping alleviate the public s financial concerns, it is necessary to revise the Insurance legislation pertaining to the Policyholder Protection Fund, as follows: - Revise regulations to assist creditors entitled to repayment of debt arising from obtaining insurance receive financial assistance promptly, with the Insurance Fund acting as liquidator of the insurer under clear conditions of payment. - In the discontinuance of insurance business operations due to insurer s license being revoked, its security, deposit and reserves shall be placed with the Life or Non- life insurance fund, and granting the OIC/ the Fund with the authority to seize all assets - Add market conduct in insurance agents/brokers regulations such as penalty on misleading sales of products, seize licenses or additional measures according to degree of misconduct. Outcome 1. The existence of legal mechanisms to protect public beneficiary rights 2. Effective and efficient management procedures in the revocation of insurance license 3.2 Standard framework of insurance services Insurance is a service provider business that requires utmost good faith and professionalism from insurance agents and brokers to team members in every field of expertise. To enable the industry to raise the level of 116

117 services and beneficiary protection to international standards, the Thai insurance industry is adopting a new way of thinking by incorporating the principle of service mind, for example introducing sales of insurance products, and reliable after- sales services, and the principle of ethical mind, where insurance personnel maintain a sense of honesty and morality in their work profession. A standard framework for proper and suitable conduct is outlined for insurance personnel of all levels from committee shareholders, executive administrators, actuaries, accountants, insurance assessor, etc. to conform to accordingly. Outcome 1.Raise the standard of services in the Thai insurance industry 2. Build more confidence and awareness in the insurance system Improve services for policyholders protection 1) Devise a framework for the Insurance Dispute Resolution Organization (IDRO) 2) Improve the quality of services of insurance companies by reducing time in payment of indemnities 3) Develop the role of the insurance service center (the insurance company and OIC) to settle complaints and disputes in a fast, professional and practical way. 4) Incorporate information technology in the management of insurance disputes by linking data network to the OIC s database system. 117

118 5) Require insurance companies to set a standardized system in services such as underwriting, payment of indemnities, after sales, services, etc. 6) Develop standard rules of conduct in payment of indemnities or other benefits according to insurance contract i.e. revising manual on payment of indemnities for motor insurance 7) Impose standard rules of conduct and supervision of underwriters and claims adjusters Outcome 1. The public /policyholders are satisfied with professional service that is fair and prompt 2. The public/policyholders receive protection and are provided with assistance in a fair and timely manner. 3.4 Establish a Catastrophe Fund With global warming being the cause of frequent and strong natural hazards affecting vast areas of the world, the cooperation between the government and the insurance sector is necessary to reduce and manage risks from these global natural disasters. Proposals are made toward the establishment of a catastrophe fund to assist the public from loss and damages brought about by severe natural hazards and unpredictable weather Outcome To assist the public in alleviating loss and damage caused by natural disaster 118

119 PILLAR 3 To improve standard of services and protection of policyholders interests Operation Plan 3.1 Revision of laws on the protection of beneficiary rights 1. Drafting the legislation 1) Compile data, evaluate issue, study and analyze foreign insurance legislation Timeframe st quarter of ) Establish a working committee consisting of representatives from the OIC and the business sector to draft the legislation before submitting to the Commission for consideration 3) The Ministry of Finance submits the draft legislation to the Cabinet 4) The cabinet accepts the legislation in principle and submits draft to the Office of the Council of State 5) The cabinet considers the draft legislation and submits to the Parliament 2. Organize seminars to disseminate information 1) engage in seminars with the business sector to identify issues 2) meet with the business sector to disseminate information on the new draft legislation 3)organize seminars to discuss the new legislation 2 nd and 3 rd quarter of th quarter/ st- 3rd quarter/ th quarter st quarter 2 nd - 3 rd quarter/ nd 119

120 quarter/ Implement standardized rules of conduct in insurance services - study and develop codes of conduct for insurance personnel - establish standardized codes of conduct for insurance personnel 3.3 Improve services for policyholders protection 1)Devise a management framework of the Insurance Dispute Resolution Organization (IDRO) 2) Develop the quality of services of insurance companies by reducing time in payment of indemnities 3)Develop the role of the insurance service center to settle complaints and disputes in a fast, professional and practical way 4)Incorporate information technology in the management of insurance disputes by linking data network to the OIC s database system 5)Require insurance companies to set a standardized system in services such as underwriting, payment of indemnities, after sales, services, etc 6)Develop standard rules of conduct in payment of indemnities or other benefits according to insurance contract i.e. revising manual on payment of indemnities for motor insurance 7)Impose standard rules of conduct and supervision of underwriters and claims adjusters by 2014 by 2012 by 2014 by 2014 By

121 3.4) Establishment of a catastrophe fund 1. Revise the Life and Non- life insurance Acts Conduct a study on catastrophe fund and develop insurance and reinsurance products

122 PILLAR 4 To promote the infrastructure of insurance 4.1 Strengthening the human resource capacity in the insurance business Actuaries 1.1) Coordinate with the Society of Actuaries of Thailand (SOAT) in increasing its role in supervision development 1.2) Ensure there is an adequate number of fellow actuaries in public and private sectors of insurance consistent with the task level and role requirements. 1.3) Amend Acts pertaining to actuaries as follows: - Grant the OIC authority to set appropriate qualifications for actuaries responsible for approving insurance reports - Develop the actuary appointed system to meet IAIS standards in order to assure efficient and effective operations of the insurance business Insurance Financial Auditor The operations of the insurance business differ greatly from other businesses due to the complex nature of risks and responsibilities involved. Insurance financial auditors must possess qualifications above the requirements stipulated in the Federation of Accounting Profession under the patronage of H.M. the King. Selection is particular and detailed to ensure that the financial budget of the insurance business is entrusted to reliable auditors. It is thus imperative to amend life insurance and non- life insurance Acts to require OIC approval before insurance companies appoint financial auditors based on fit and proper principles. 122

123 4.1.3 Insurance Appraisers Protect public rights and fairness in payment of indemnities with an intermediary who appraises in the event of loss or damage. - Develop insurance appraisers' capabilities through regular training programs - Establish operational standards assessments to ensure conformity and independence Underwriters/Claim Adjusters Establish operational standards and supervision guidance for underwriters and claim adjusters to ensure proper ethics and codes of conduct Intermediary (Insurance agents/brokers) The insurance intermediary plays an important role in the insurance system in gaining access to the public at all levels. The development of a reliable and trustworthy insurance intermediary is therefore essential in disseminating correct and accurate information. Furthermore, in improving the intermediary to become more professional and qualified will gradually advance to becoming an insurance advisor. Guidelines include: - Establish rules, qualifications and standards of insurance advisors. - Establish standardized curriculum and examinations for insurance advisors Cooperate with academic institutions in promoting insurance personnel development To ensure the development of insurance professionals, the cooperation of academic institutions is essential by 123

124 integrating knowledge of insurance into academic curriculums, providing students with fundamental knowledge of insurance and how the profession can be an option for future studies. Measures include: - Organize activities aimed at providing career counseling and promoting a better understanding of insurance among high school students. - Offer more educational training and insurance business courses at the university level with a curriculum covering all aspects of the insurance profession. Outcome Insurance personnel are knowledgeable and maintain standard codes of conduct and are approved by the public. 4.2 Improve the tax system for the development of the insurance business The structure of the tax system has a direct influence on the stability of the insurance business. With the cooperation of the public sector, the present taxation structure needs to be revised to create equity and fairness and facilitate growth and expansion of insurance through the following measures: 1)Amendment of of tax legislation to promote the merge of insurance companies. To ensure financial stability, insurance companies are encouraged to merge with one another and become a more 124

125 standardized group that is secure, trustworthy, and ready to adopt the new- Risk- Based Capital regulations.the RBC,a new form of standardized supervision of life insurance and non- life insurance companies, will facilitate insurers to mobilize funds, raise capital, and expand their businesses to better compete in the international market following future insurance liberalization. To promote the merge of companies, the following tax legislations need to be revised: 1.1 Amend tax legislation to exclude insurance reserve from computations of corporate income tax According to the Revenue Code, once two or more insurance companies merge, the individual companies are considered to be terminated with the new company required to combine the insurance reserve and calculate the corporate income tax of juristic entities. The new company is subject to taxation of both companies, rendering it financially unstable due to overly high expenses. Amendments should be made to include: 1.2) Amend tax legislations to exempt taxation arising from merging or transferring of companies as prescribed in the Revenue Code namely value- added tax, stamp duties, corporate income tax and personal income tax. 2)Amendment of tax legislations to promote life insurance and non- life insurance by allowing insurance premiums to be granted tax deductions for different types of insurance namely pension insurance, health insurance, non- life insurance for catastrophes, etc. 125

126 2.1) Pension insurance In encouraging the public to build a long term savings plan to prepare for retirement, the pension insurance plan is a mechanism that supports the aging society of Thailand and assists the government alleviate the responsibility of caring for the elderly. 2.2) Investment Insurance Promote long- term savings and investment as well as increase efficiency in capital market investment. The scheme offers policyholders with life protection coverage and investment opportunities, providing diversified and innovative products to suit their changing needs. 2.3) Health Insurance Health Insurance helps increase the public s quality of life through a protection scheme assisting policyholders in covering health expenses. With the government s tax incentive measures, more people are purchasing health policies insurances and receiving standardized medical services, which is indirectly helping the government to reduce its budget in health expenditures. 2.4) Non- life insurance coverage of catastrophe loss In encouraging the public to gain coverage from catastrophes caused by global warming, the government has devised tax incentives for the public to consider the importance of insurance and help alleviate the responsibilities from the public sector. 126

127 3) Amend regulations in considering insurance claims reserve as expenses in the calculation of corporate income tax for life and non- life insurance companies following an accrual basis in accordance with the conditions prescribed in Section 65 bis and ter of the Revenue Code. The amendment will enable life and non- life insurance companies to develop more diversified products that meet the needs of the public and demonstrate the companies real profits. 3.1 Life insurance Insurance reserve is a liability that insurance companies set aside to pay claims for policyholders upon termination of contract. With the rapid changing society and structure of the population indicating longer life spans, there is a need for insurance companies to develop more diversified insurance products to meet these changes including the pension policy plan, the whole life insurance, and insurance policies with premium payment of a shorter duration than the life policy. These types of policies require companies to set aside high claims reserves, at 80-90% of the amount of premium received in an accounting period, and higher than the Revenue Department s stipulations. Presently reserves for life insurance set aside before calculation of profit, of an amount not exceeding 65% of the amount of insurance premiums received in an accounting period after deducting premium for re- insurance, shall be treated as expense. Hence it is recommended that revisions be made to consider the reserves calculated on an accrual basis as expense for the purpose of calculating corporate income tax. 3.2 Non- life insurance According to regulations of the Revenue Department it is allowed to solely consider the unearned premium reserve(upr) at 40% of net premium and indemnities reserve of agreed value to be treated as expenses in calculating net profit. Reserves incurred but not report 127

128 (IBNR) and case reserves cannot be treated as expense. As a consequence, companies are inevitably responsible for partial deferred taxation. To create more fairness and equity to insurance companies, revisions should be made to consider the claims reserves calculated on an accrual basis as expense for the purpose of calculating corporate income tax. 4) Specific business tax imposed on insurance is granted a reduction rate equivalent to commercial banks as stipulated in the State Council concerning tax reductions (Vol. 469, 2008) 5) Coordinate with the Board of Investment to seek measures in business tax deductions for Thai companies that receive support from the Board of Investment. Expected outcome 1) Create equity and fairness in the taxation structure pertaining to Thai insurance, allowing the effective growth and stability of the industry. 2) Companies are able to merge and create financial solidity, with exchange of knowledge and technology 3) The public benefit from life, health and financial protection schemes that meet their needs and preferences. 4) Insurance companies are financially secure to engage in supporting various government investment projects, including capital and bonds market that lead to the nation s consistent economic growth and prosperity 128

129 4.3 Set guidelines for product development iin the capital market for insurance businesses Coordinate with related organizations such the Finance Ministry, the Bank of Thailand, and the Securities and Exchange Commission to issue the long- term debentures or other forms of government bonds to support the asset liability management of insurance companies. Expected outcome Insurance companies are able to conduct its asset liability management operations more effectively. 4.4 Operae according to standard accounts asset evaluation 1) Examine the differences between new and existing accounting standards 2) Study how the complexities will affect the insurance business, its adaptability, changes in capital margins, increased investment in operational systems, taxation, etc 3) Set up a working committee to support and encourage insurance companies to systemically comply to new accounting standards 4) Encourage the insurance private sector to establish an investment plan in its work operations and personnel in preparation for the adoption of new accounting standards 5) Coordinate with other organizations to facilitate the work operation under the new accounting standards such as the Certified Accountants and Auditors of Thailand, the Revenue Department, accounting academic institute, accounting offices, etc 6)Conduct routine tests of insurance companies according to accounting standard framework. 129

130 7) Create a new section under the OIC website entitled Financial and accounting reports to be used as a means of communication and exchange of information between related organization, including a Q&A, recommendations, accounting guidelines conforming to accounting standards, current and on- going events in the insurance business for the public to gain access into for up- to- date information. 4.5 Strengthen the IT capacity Data Information 1) Develop database for insurance statistics and data processing program in order to determine insurance premium, calculate capital reserve and maintain risk- based capital, for example information center for loss cost, database for medical expenses, database for supervising premium rates based on past experiences, etc. Under the principle- based supervision in determining premium rates, calculating insurance reserve, and maintaining risk- based capital, the OIC need to have access to information and statistical data to be used as references and analysis of insurance business financial status and ensure conformance to the current industrial situation. Furthermore, with several insurance companies having no statistical data of their own practices, the general data compilation of the insurance industry will serve as references and a means of company analysis, leading to better management and increased competitiveness within the industry. 2) Develop database to support risk supervision and risk assessment of insurance companies,for example database on company s risk analysis, approvals and 130

131 permissions, history of company penalties, company structural changes, etc Developing database to support risk supervision and risk assessment requires risk analysis of insurance companies from a database system that is modern, accurate, reliable, providing information that is sufficiently complete, easily accessible, and serves to improve the management and supervision of insurance companies. Database for insurance companies risk- analysis database is composed of financial and non- financial data for example financial reports and companies infrastructural changes. It is thus important of have a reliable database system to serve as a tool in future analysis and supervision. 3) Develop a central database system of insurance, particularly in market conduct and public beneficiary rights where it can automatically check information of the insured name on the watch list, insurance intermediaries with history of fraudulence, misconduct, or disputes of claims, all which can be verified throughout the insurance data network system. The central database system will serve to protect the public s beneficiary rights and assure equity and fairness in the insurance market through the verification of information relevant to the efficient operations of the insurance business. Technology systems 1) Develop and design programs that perform data compilation and processing to be utilized in risk analysis and supervision of insurance companies, thus helping to save time and resources in data collection. OIC 2)Develop an internal data networking system in the 131

132 Risk supervision requires an internal data network system so information can be accessible throughout the OIC, allowing company management and supervision to be conducted in a modern, complete, and methodical way, consistent with present trends and conditions of the insurance industry. 3) Develop and design programs that support data compilation of premium rate supervision, insurance reserve, and risk- based capital which will prove beneficial in the technical computations and research of the insurance industry, leading to efficient management and supervision of insurance companies, consistent with present trends and conditions. Expected Outcome 1. The OIC has adequate data and information in conducting risk analysis of insurance companies to be utilized in the consideration of premium rate supervision, insurance reserve and risk- based capital conforming to the risk based supervision framework. 2. Insurance companies have sufficient database for conducting its operations conforming to principle- based framework. 3. The risk- based supervision system is modern, appropriate, and consistent with present trends and conditions of the industry 4. The insurance industry has a central database network system efficiently set in place. 132

133 4.6 Reform insurance laws The new insurance draft legislation has been proposed in order to build a fundamental structure in the promotion and supervision of insurance business corresponding to current social and economic conditions as stipulated in the Insurance Core Principles established by the International Association of Insurance Supervisors (IAIS). Significant contents of the draft legislation are detailed as follows: 1. Set qualitative and quantitative risk assessment supervision of insurance companies through company management, internal control, and the effective management and assessment of various risks of the insurance business. 2. Set qualification requirements for prospective company board of directors, executives, auditors and actuaries who are experienced, trustworthy, and an asset to the insurance business as well as devise legislative measures to eradicate those who are not qualified for insurance business operations. 3. Maintain corporate governance within insurance companies to ensure management efficiency and transparency of corporate activities, with board of directors and executives conducting their duties responsibly and committed to outlining policies to strengthen management structure. 4. Devise legislations for group- risk assessment to keep pace with the changing trends and ensure efficient work operations. With the constant changes in society, insurance companies could be integrated into an insurance group or conglomerate. 133

134 5. Make preparations to pave way for insurance liberalization by establishing standardized rules in issuing licenses and creating trust and confidence among foreign business circles in Thailand. 6. Enforce existing and devise news legislations in the supervision of insurance intermediaries who play an important role in protecting consumers and building confidence in the insurance market. 7. Devise anti- money laundering and anti- terrorism measures conforming to FATF recommendations. Expected outcome The existence of a legislation that serves as legal reference in insurance supervision conforming to Thai social and economic conditons as well as to international standards Establish the OIC Advanced Insurance Institute Insurance is a business that provides services of intangible products to policyholders who rely on insurance companies to protect their assets and financial base. It is in effect vital for all sectors of insurance personnel to have in depth knowledge and understanding of insurance principles, maintain professionalism and conduct their duties with moral and ethical standards. The growth and development of the insurance business relies on the ability develop its 134

135 personnel, create innovative products,and successfully shift to risk- based supervision in preparation for competition in the international market once insurance liberalization takes place in To ensure efficiency in developing insurance personnel, there is a need to set up an organization serving as a center of insurance knowledge offering insurance training programs and education on insurance principles, moral and ethical codes of conduct, insurance professionalism, and accurate understanding of specific duties and responsibilities of all personnel. The establishment of the OIC advanced Insurance Institute will help foster insurance personnel development and lead the industry to possess qualified experts and professional team members who will help guide the business to greater heights. Expected Outcome 1. An insurance institute in personnel development that is standardized and equipped with complete insurance curriculum to serve as the center of higher studies and knowledge for the OIC and insurance business sectors. 2. Increase knowledge, efficiency and quality standards of insurance services conforming to legal and ethical codes. 3. The public gain a better knowledge and understanding of insurance and takes advantage of their beneficiary rights. 135

136 PILLAR 4 To promote the infrastructure of insurance Operation Plan 4.1Strengthening the human resource capacity in the insurance business Actuaries 1) Coordinate with The Society of Actuaries of Thailand (SOAT) in increasing its role in supervision development such as: - Engage SOAT with the responsibility of establishing operational standards and guidance related to actuarial practices to be combined with OIC supervision. - Encourage SOAT to develop an actuary curriculum and organize professional examinations specifically for Thai actuaries. 2) Coordinate with academic institutions that offer actuarial courses aimed at providing career counseling and promoting a better understanding of the actuarial profession among high school students. 3) Offer more educational training of actuaries at university level with a Estimated Time Frame (continuous) (continuous)

137 curriculum conforming to international standards 4) Study the role and framework of actuaries in appointed actuary system according to IAIS standards Insurance Financial Auditor Propose amendment of legislation for insurance companies to require OIC approval in appointing a financial auditor with fit and proper criteria Insurance Appraisers - Develop insurance appraisers' capabilities through regular training programs - Establish assessment standards and independency Underwriters/Claim Adjusters Establish operational standards and supervision guidance for underwriters and claim adjusters Insurance agents/brokers - Establish rules, qualifications and standards of insurance consultants. - Establish standardized curriculum and examinations for insurance consultants. by (continuous) Cooperate with academic institutions in promoting insurance personnel development - organize activities aimed at 137

138 providing career counseling and promoting a better understanding of insurance among high school students. - Offer more educational training and insurance business courses at the university level with a curriculum covering all aspects of the insurance profession (continuous) 4.2 Revision of tax legislation in order to develop the insurance system 1) Revision of tax legislation to promote a consolidation of insurance companies. 1.1)Examine and evaluate the effects taxation has on the consolidation of insurance companies 1.2) Revise tax legislations to facilitate the consolidation of insurance companies. 1.3) Disseminate information on taxation to the public, the business sector and related organizations 2) Revision of tax legislations to promote life insurance and non- life insurance by allowing insurance premiums to be tax deductible. 2.1) Submit studies on the revision of tax legislation to promote life insurance and non- life insurance by enabling insurance premium to be tax deductible for different types of insurance

139 2.2) Revise tax legislations to promote life insurance and non- life insurance 2.3) Disseminate information and provide an understanding to the public, the business sector and related organizations 3) Revision of regulations in considering capital reserve as expenditure when calculating corporate tax of insurance companies 3.1) Submit studies on how taxation restrict insurance development due to considering capital reserve as expenditures 3.2) Revise tax legislations and follow up until its completion. 4.3 Propose measures in product development of capital insurance market. Promote the issuance of long- term government debentures and other long- term debentures. 4.4 Procedures in accounting standards and assessment of assets 1) Examine the differences between new and existing accounting standards, their implications and capacity to adjust accordingly. 2) Set up a working committee to support and encourage insurance

140 companies to systematically comply with new accounting standards. 3) Conduct routine tests of insurance companies according to accounting standard framework. 4) Increase communication channels among personnel in insurance business. 4.5 Promotion of Information Technology Potential. 1) Develop database for insurance statistics and data processing program in order to determine insurance premium, calculate capital reserve and maintain risk- based capital. 2) Develop database for risk assessment 2.1) Study and compile data for risk assessments 2.2 Ensure readiness of software systems for major undertakings 2.3) Develop internal network systems for data risks and risk assessment within the OIC. 2.4) Develop database for other essential systems. 3) Improve database systems for financial reports 4) Develop market conduct data base and protection rights 4.1) Study and examine data of insurance broker with history of misconduct, data on damage claims and data transmission order. (continuous) continuous

141 4.2) Study and examine data essential for market conduct supervision and examination and prepare for data transmission, data processing and system testing. 5) Seek outsourcing agencies to serve as an information center for specialized skills to ensure effective data compilation and processing 4.6 Insurance law reforms 1) Research and collect information, define issues and analyze foreign legislations relating to insurance supervision. 2) Set up a working committee that may comprise of representatives from the OIC and business sectors to work on a draft before presenting to OIC boards for consideration. 3) Ministry of Finance proposes the legislative draft to the cabinet. 4) The cabinet approves in principle and submits the legislation to the State Council for review. 5) The cabinet considers the legislation and presents to Parliament. 2. Organize seminars and educate general public 1) Engage in meetings with business sectors to define issues. 2) Engage in meetings with business sectors to study and examine the new legislation. 3) Organize seminars to rd quarter/ th quarter/ st quarter/ nd - 3 rd quarter/ th quarter/ st - 3 rd quarter/ th quarter/ st quarter of nd - 3 rd quarter/201 2 nd quarter/

142 promote the new legislation. 4.7 Establishment of the OIC Advanced Insurance Institute 1) Establish OIC Advance Insurance Institute. 2) Research, analyze and develop personnel training programs for various insurance groups. 3) Initiate technical cooperation with local and foreign establishments allowing OIC staff to broaden their knowledge overseas, and at the same time send foreign experts to share their expertise with Thai insurance personnel. 4) Improve OIC library administration and develop it into a learning center for insurance. 5) Develop insurance personnel ensuring fit and proper conduct. 6) Cooperate with academic institutions in promoting insurance education in areas lacking in expertise. 7) Develop insurance agents and brokers into insurance advisors continuous

143 Chapter 4 Objectives, indicators and guidelines in conforming with the Insurance Development Plan 1. Objectives of the Insurance Development Plan Volume 2 ( ) 1. 1 Building more confidence on the importance of insurance as well as better insurance access for the public Insurance growth and the spread of the insurance system to all levels of society are factors indicating the ability to develop insurance products,increase distribution channels, perform marketing operations, and build public trust in insurance. In measuring success in these areas, 4 objectives have been established: Insurance Penetration Insurance plays an important role in the social and economic system of the country serving as a tool in risk management, protection of life and assets of the public and business corporations. However, the Thai people are not taking full advantage of the benefits of insurance, with insurance penetration accounting for only 4.07% in It is thus expected that under the measures devised in the Insurance Development Plan Volume 2, insurance penetration will increase to 6% by

144 1.1.2 Insurance Density Under the Insurance Development Plan Volume 2, it is expected that insurance density will increase from 4,600 baht in 2009 to 7,500 baht (life insurance 4,200 baht and non- life insurance 3,300 baht ) by Insurance policies per capita 1) Promote the public of all income levels in the industrial, trade and agricultural sector to gain protection from insurance policies with the ability to select insurance products conforming to their needs, risks and preferences. With the promotion of saving schemes and better distribution channels, it is expected that the number of life insurance polices issued will increase from 26.75% in 2009 to 40% by ) Increase the number of non- life insurance policies other than motor insurance to distribute and alleviate the risks from non- life insurance companies through the cooperation between the public and private sectors of insurance. 1.2 Strengthening the capacity of the insurance system The key to building trust and confidence in the people on insurance is to demonstrate the ability to execute work operations with speed and accuracy. It is important to perform accurate calculations to ensure sufficient capital reserve with standardized and efficient management of assets, liabilities and expenditures while delivering high quality customer service that is timely, fair, accurate and equitable. 144

145 1.2.1 Conformance to insurance commitments Insurance companies are a professional team with the capability of facing different situations, dilemmas, and challenges to provide trustworthy service to the public conforming to the terms and conditions stipulated in the contract. To build trust upon the public, companies need to possess a good framework of operations, an effective administrative and personnel management system to comply with cooperate governance and a professional teamwork ready to execute marketing strategies, develop products and ensure efficient management of accounts, finances, investment, information technology, as well as a reliable after- sales customer service. It is vital for an efficient insurance system to demonstrate the capability to maintain sufficient capital reserves according to asset management standards and conforming to asset liability management in order to fulfill all binding commitments Financial stability of the insurance system Capital fund considered a strong indicator of the stability of the industry, the OIC in cooperation with insurance private sector has since 2008 conducted studies in order to develop the risk- based capital (RBC) supervision with the aim of acquiring adequate funds to manage unexpected occurrences and events. Three types of risks are taken into account namely insurance risk, market risk and credit risk, with the addition of asset- liability mismatch risk for life insurance. Once the parameter have been adjusted to suit the Thai insurance business, the risk based capital regulatory framework will be adopted by Hence, it is expected that by 2015 all life insurance and non- life 145

146 insurance companies will be ready to conform to rules and regulations governing the supervision of risk- based capital framework with precision and accuracy, with capital fund according to law at no less than 120%, all to ensure stability of insurance companies. The adoption of the risk- based capital supervision is a major challenge of the Thai insurance system in terms of knowledge and technology as well as marking the Thai insurance advancing to internationally accepted standard requirements and conformance to Solvency II of the European Union. Thai insurance companies will be engaging in improvements of their business operations, insurance products, management of capital, and new systems to conform to revised rules and regulations. The costs in business operations may increase, but the companies success in achieving capital reserve according to target by 2014 will be a great challenge. Improvements in insurance structure, services and management systems will successfully guide Thai insurance to long term growth and stability Supervision of insurance product development process In seeking potential to create innovative products to meet the market demand in a timely manner, there is a need to speed up the process of granting approvals of product design, insurance policy forms, premium rates, with a target to eliminate unnecessary procedures by 25% by the year Improving the standard of services and protection for policyholders interests To ensure the public receives fair and equitable services from insurance companies in payment of indemnities, the 146

147 public and private sectors of insurance will cooperate to undergo the following improvements: All insurance companies will implement standardized operational systems in providing services in underwriting systems, payment of indemnities, after- sales systems, etc The structure and management of the Insurance Dispute Resolution Organization (IDRO) will be underway. 1.4 Fundamentals in insurance business development Establish the Insurance Bureau System The OIC has since 2006 required insurance companies to submit their annual financial and operating information via electronic system for the purpose of company financial evaluation and analysis as well as increase supervision measures of the insurance business. Plans have been made to establish a database consisting of information necessary in company examination and supervision such as non- life insurance statistics in reinsurance risk supervision conforming to risk- base capital framework and capital reserve supervision. The statistical data will serve as reference in the implementation of supervision policies and management structure that meet international standards. The database system will commence its operations in 2010 by initially seeking agreement from the business sector before proceeding to transmit data and perform trial data transmission systems between , with continual data compilation and verification to be completed by Reform insurance laws With the constant changes in the world today affecting social economic, political and cultural aspects of society, businesses are faced with the need to adjust their roles and revise rules and regulations to conform to the structural changes. With the aim to strengthen the insurance business 147

148 and protect public beneficiary rights, the insurance business is confronted with the need to amend its legislations namely The Life Insurance Act of 1992, The Non- life Insurance Act of 1992, and the Protection from Motor Vehicle Victims Act 1992, including sub- legislations of the aforementioned Acts, with the amendments expected to be finalized by The Insurance Legislation serves as an important tool in the supervision of insurance business consistent with the social and economic changes of Thai society and adhering to internationally accepted standards. The present legislations have been enforced for many decades with some measures that no longer facilitate present supervision structures such as penalties that are limited to only fines and imprisonment. It is recommended that new legislations be drafted and enacted with contents conforming to international standards and tending to present Thai social and economic situations. Completion of the new legislation is targeted for Personnel Development Improving standards of insurance intermediaries Insurance intermediaries consisting of insurance agents and insurance brokers are those who are have the closest rapport to the people and are able to build public confidence in the insurance system. Measures have been devised to ensure they perform their duties with professionalism,upholding moral and ethical conducts and can act as insurance advisors to the domestic, industrial, trade and agricultural sector of the nation. It is expected that 20% of insurance intermediaries with high qualifications and expertise are to ascend to insurance advisors by Improving capacity of insurance professionals 148

149 The insurance business relies on competent and qualified personnel, including actuaries and insurance appraisers as stipulated in the Life Insurance Act 1992 ( revised in 2008) and Non- Life Insurance Act 1992(revised in 2008) to complete actuarial science specified by law to ensure adequate number of competent insurance It is expected that by 2014, 70% of life insurance companies should have qualified actuaries, and a fellow of the Actuarial Association, while 70% of non- life insurance companies should have actuaries possessing qualifications required by law. 2. Indicators of Insurance Development Plan Vol. 2 In order to monitor the progress of various work operations implemented according to the Insurance Development Plan Volume 2, ( ), the following indicators have been formulated: Pillar 1 To build more confidence and awareness on the importance of insurance, and better insurance access to the public 1. Indicator : Insurance Density Objective : demonstrate success of the insurance business in gaining access to the public and in developing services system for maximum efficiency Baseline data : approximately 4,600 baht (2009) Target: approximately 7,500 baht (2014) Life insurance 4,200 baht Non- life insurance 3,300 baht 149

150 2. Indicator : Life Insurance policies per capita Objective : the public of all income levels are protected by insurance system, demonstrate economic stability with the ability to select insurance products suitable to their needs, risks, and preferences Baseline data : life insurance business 26.75% (2009) Target : life insurance business 40% (2014) Pillar 2 To strengthen the capacity of the insurance system 1. Indicator : Capital Adequacy Ratio (CAR) Objective : demonstrate security and stability of insurance companies. Baseline data : 100% according to law Target : 120% by Indicator : reduce time in granting approval of insurance products Objective : To increase insurance companies competitiveness in creating innovative products to meet market demand Baseline data : 2010 statistics as baseline Target : reduce time in granting approval of insurance policies by 25% by

151 3. Indicator : number of forms, insurance and premium rates approved through File&Use system Objective: : To increase insurance companies competitiveness in creating innovative products to meet market demand Baseline data: use 2010 statistics as baseline Target : Number of forms and premium rates approved through File&Use system increase by 30% in 2014 Pillar 3 : To improve the standard of service and protection for policyholders interests 1. Indicator: Companies have standardized service system set in place conforming to Insurance Core Principles Objective : Improve standards of insurance services and build public confidence in the insurance system Baseline data : none Target : all companies by Indicator : set up structure and management operations of IDRO (Insurance Dispute Resolution Organization) Objective : Improve standard of insurance services Baseline data: none 151

152 Target: set up structure and management operation of IDRO by 2014 Pillar 4 To promote the infrastructure of insurance 1. Indicator: The insurance business has a central database system Objective : Provide the insurance industry with a central database network system that reflects the efficiency of the insurance system Baseline data : none Target : Has a central database system by Indicator : The insurance business has competent personnel Objective : build and increase competency of insurance professionals Baseline data : Life Insurance companies have 69 actuaries, 20 of whom are fellow Actuary members. Non- life insurance companies have 39 actuaries, 15 of whom are fellow Actuary members while 5 are actuaries in both life and non- life insurance (2009) Target : 1. 70% of life insurance companies have actuaries who are members of the Fellow Actuary Society by % of non- life insurance companies have actuaries with qualifications required by law by % of insurance intermediaries have qualifications required by law and are able to ascend to insurance advisors by

153 3. Indicator : Reform Insurance Laws Objective : To have a standardized insurance legislation to ensure efficient insurance supervision conforming to Thailand s social and economic conditions. Baseline data : Insurance Act 2008 (2009) Target: Complete the new insurance draft legislation by Guidelines in conforming with the Insurance Development Plan Volume 2 ( ) Following the approval of the Insurance Development Plan Volume 2 to conduct its operations conforming to devised framework, it is important to examine and closely monitor its operations to ensure implementation according to set goals. Reports on the progress of work operations are to be submitted to the Insurance Commission as well as release of information to the public on a regular basis. Guidelines for supervision are detailed as follows: 1. The OIC in cooperation with associations and related organizations are to supervise, monitor and evaluate the work operations according to the Insurance Development Plan by reporting its progress to the Insurance Commission every six months to ensure work consistency. 2. Set procedures in monitoring work progress and information disclosusreevery six months through various channels such as : 2.1 Through the OIC website 153

154 2.2 Through seminars or press releases to report progress 2.3 Through dissemination of reports or articles to the public indicating work progress In addition, the OIC, as a supervisory unit, will engage in work operations to support the implementation of the Insurance Development Plan Volume 2 to ensure that the plan achieves its goals and objectives. 154

155 Summary of objectives in improving of the insurance system according to the Insurance Development Plan Volume 2 ( ) Indicator Actual figures 2009 Target 2010 Target Insurance penetration p 4.07% 4.58 % 6% 2. Insurance Density approx. 4,600 baht approx. 5,300 baht baht *life insurance 4,200 baht *non- life insurance 3,300 baht 3. Life Insurance 26.75% 28.18% 40% policies per capita 4. Growth rate of micro- 20% increase insurance policies N/A Base year 5. Capital Adequacy Ratio (CAR) 100% 100% 120% 6. Reduce time in granting approvals of insurance products N/A Base year 25% decrease 155

156 Indicator Actual figures 2009 Target 2010 Target Number of forms and insurance premiums approved through file&use 8. Standard operation systems according to Insurance Core Principles N/A Base year 30% increase N/A N/A All insurance companies have standardized work operation services conforming to ICPs 9. Insurance Dispute Resolution Organization N/A N/A Set up structure and management operations of IDRO 156

157 Indicator Actual figures 2009 Target 2010 Target Developing actuaries Life Insurance companies- 69 actuaries (20 fellow members) Non- life insurance companies 39 actuaries N/A Insurance companies 70% are actuaries and fellow members Non- life insurance companies 70% are actuaries w/out qualifications required by law 11.Developing qualified Insurance advisors 12. A central database system 13. Complete new insurance legislation draft N/A Base year 20% increase N/A N/A Complete central database system Insurance Act 2008 N/A Insurance legislation draft completed 157

158 OTHERS 1) Direct premiums 368,770 million baht 423,716 million baht 739,688 million baht 2) Increase property insurance policies 2.14 million policies 2.20 million policies 2.41 million policies