Insurance Department director-general Potjanee Thanavaranit observes selling insurance online.

When Parliament resumes, the Commerce Ministry will submit legal amendments intended to improve the audit of insurance companies' books. Each non-life operator will be required to increase its capital fund to 300 million baht, from 30 million currently and, in the case of each life insurer, to 500 million from 50 million.

Currently, more than half the 78 companies in the non-life sector each have less than 300 million baht in capital funds. According to the Insurance Department, capital funds in the non-life sector total 36 billion baht, but 14 billion is held by one company and only 29 each report having capital funds exceeding 300 million baht.

However, companies will be given some time to meet the new requirement, which was approved by Commerce Minister Adisai Bodharamik on Oct 25.

Each non-life insurer would be required to increase its capital fund to 200 million baht within two years of the law taking effect, and to 300 million within five years, said Potjanee Thanavaranit, the department's director-general.

Life insurance companies face the same requirements. However, most of the 26 firms have already complied as many opened for business in recent years. Each newcomer was obliged to have 500 million baht in capital funds.

Several companies complied by merging with foreign partners to strengthen their finances. Another course recommended by the insurance authority is for small local firms to merge. To help the process, each company is now allowed to hold a stake of up to 10% in another insurance business.

GREATER SCRUTINY

Starting in March, the department will introduce new methods to examine and analyse the overall industry and performance of each firm, by adopting the system used by the Securities and Exchange Commission to monitor listed firms. The steps include more stringent requirements for company executives to disclose information about their firm to the public.

The department has suggested that non-life insurers reduce their reliance on automobile coverage to 20% of their portfolio from 40% currently in order to diversify risk.

Many companies are providing sales agents with better training intended to help them tailor products to customer requirements instead of offering pre-set options on a take-it-or-leave-it basis as in the past.

At the same time, in an effort to reduce customer complaints and the risk of fraud, licensed agents will have their performance officially scrutinised regularly. Every five years, they will be required to attend refresher courses with examinations conducted by the department. As of Nov 25, the life insurance industry had 327,221 licensed sales agents, and the non-life segment had 31,680.

In 2001, customers and insurance firms lodged about 500 complaints with the department about sales agents committing fraud, including embezzling money from clients.

TAX INCENTIVES

Premiums collected by the life insurance industry in 2001 totalled about 89 billion baht, 20% more than in the previous year, although only 13% of the population have life coverage, with a total of 9.5 million policies.

To encourage more people to take out policies, the tax deduction for life insurance premiums may be increased to 50,000 baht per taxpayer from 10,000 baht which has applied since 1987.

The department estimates the tax revenue loss at one billion baht a year. However, if the number of policy holders increases, the government expects to benefit from corporate tax paid by insurance companies, personal income tax paid by sales agents and brokers, and special tax on investments.

The ministry has asked the Thai Life Assurance Association to work out the possible gains and losses if the tax deduction is increased by a range of options from 30,000 baht to 50,000 baht.

The association's president, Sutti Rajitrangsan, said the life insurance industry would likely grow by 30% in 2002 to 100 billion baht in gross premiums if the tax deduction was allowed.

INVESTMENT OPTIONS

Insurance companies will be allowed to widen their scope of investment when the Cabinet finalises the details.

Companies will be allowed to earn income from selling or renting assets seized from debtors after five years instead of nine years. They will be able to provide housing loans of up to 10 million baht each, up from the current limit of five million baht.

The department and insurance bodies agree that direct sales and buying policies online will be promoted, with walk-in customers and those buying via the Internet offered discounts, as the firms save money by not paying commissions to agents or brokers.

Generally, about 80% of initial premiums from new business go toward expenses. Direct sales can reduce the costs to 60%. The expenses include a commission of 40% to 50% of the initial premiums paid to the agent.

The insurance impact of an explosion that destroyed a Thai Airways International airplane at Bangkok Airporrt early this year was dwarfed by the fall-out from the terrorist attacks in the United States in September, after which all airlines faced massive increases in premiums.

Another service, bancassurance will be promoted in 2002 when the central bank allows commercial banks and their staff to underwrite insurance, both life and non-life, and book the revenue. The existing law bars commercial banks from doing so.

The Insurance Department is confident that the new sales channels will not adversely affect agents and brokers because there is substantial room for the business to grow, given the low number of policy holders.

In contrast with bullish projections for the life insurance industry, the non-life segment is expected to see 5% growth to 51 billion baht in premiums in 2002.

On the downside, the Sept 11 events dealt a blow to the global insurance industry and Thailand's was no exception.

Premiums on reinsurance have doubled and tighter conditions now apply. The coverage is limited and clients are required asked to bear a larger amount of damages before making a claim.

In particular, the terrorist attacks prompted a sharp increase in airline insurance charges. The cost of insuring Thai Airways International Plc's fleet increased to US$29 million a year from $17 million. The airline must pay an additional premium of $8.8 million to cover its fleet against terrorist acts, up from $400,000 while the insurers accept less liability for damage to third parties. The government also to increase its coverage for damage to THAI's aircraft.

INDUSTRY SUPERVISION

Liberalisation of the industry will see the department transformed into an independent organisation, the Office of the Insurance Commission. The transformation will follow the international trend, under which insurance regulators in many countries including of Britain and Australia have been transformed into independent bodies.

Legislation to establish the commission is being drafted. The new body will supervised by an 11-member board of industry experts.

The administrative structure of the organisation will be similar to that of the Securities and Exchange Commission, which is led by a secretary-general, two deputy secretaries-general and four assistants. Staff should have knowledge of insurance and finance to cope with the future expansion and more financial-linked businesses in the insurance sector. They must also be service-minded.

The establishment of the independent body might not be completed in 2002 given the lengthy process of drafting supporting legislation. But when the board does take shape, it is expected to bring a big improvement in the industry's standards.