decades, people are shifting their investments to other financial investment vehicles and life insurance is a popular choice.

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The life insurance industry in Thailand has expanded substantially in recent years despite many life insurance companies trimming returns given to its policyholders. These returns are now as low as 4% from 5-6% a year but these returns are competitive when compared with deposit interest rates offered by banks, which are only 1.25% to 1.50% for savings and 1.75% to 2% on fixed accounts.

The government's decision to increase the tax deductibility of life insurance premiums to 50,000 baht annually from 10,000 baht makes investing in life insurance even more enticing.

FRESH INCENTIVE

The raising of the tax deduction to 50,000 baht has been applied retroactively to any life insurance policy that will mature in more than 10 years and which was issued after Jan 1, 2002.

American International Assurance Co opened a 130-million-baht training centre on the sixth floor of Sathon City Tower late in August. The centre, which covers 3,400 square metres, is the insurer's largest in Asia.

This incentive and poor finance market conditions helped expand the industry rapidly, with the Insurance Department forecasting total premium income to grow by about 30% by the end of the year to about 120 billion baht from 94 billion baht in 2001. The growth forecast was raised from earlier forecasts of 18-20% after the government approved the increased tax deduction in August to 50,000 baht for savings policies that were issued locally.

Rumours that the tax deduction was to be raised had been circling around the industry since early 2002 but the uncertainty over when it would be introduced restricted sales.

Income from premiums in the first seven months of 2002 grew by nearly 13% to around 10.9 billion baht, compared with 9.7 billion baht for the first seven months of 2001. Industry sources noted that the issuing of 305 billion baht in government savings bonds in August, offering 4-6% returns to investors, was another factor that hindered life insurance growth in that seven-month period.

After the tax incentive was finally confirmed, income from premiums grew by about 29% to 81 billion baht by the end of September, 2002.

The Insurance Department reported that the number of policyholders, for the first time, reached 10 million in September, or about 15% of the 65 million population. It anticipates market competition and the tax incentives would spur the industry in the last quarter to achieve annual growth of 30% for the year. This could increase the number of effective policies held to 18% of the population in the next couple of years.

The government is expected to lose about 1.5 billion baht in tax revenue in the first year after the higher deduction takes effect.

However, the Insurance Department estimates that the loss would be offset by higher corporate and income taxes resulting from continued healthy growth for the insurance business.

The Thai Life Assurance Association has forecast total industry tax payments at 6.2 billion baht a year under the new system, including corporate and withholding tax, compared with around five billion baht now.

It says the incentives would also encourage people to seek larger sums insured and higher premiums. Policies with annual maximum premiums of 10,000 baht represented 76% of market share, according to figures for 1999.

Some insurance experts including Chai Sophonpanich, president of Bangkok Insurance Plc, expect slower growth in 2003 due to a fall in premiums from ``single-premium'' products _ high- return products that accounted for about 22-23% of total premiums in the past few years.

The major players in single-premium products include Ayudhya Allianz CP Life Plc but they will be abolishing these products to avoid possible investment risks.

CHALLENGES AHEAD
While the industry is expected to remain bullish in the next few years, it is crucial for it to maintain the capabilities and standards of its sales agents to meet future challenges.

Thai Life Insurance Co invested 50 million baht in a care centre to serve its 2.5 million policyholders. Located at the company's headquarters on Ratchadaphisek Road, the centre has 30 staff with 90 telephone lines operating on weekdays.

The number of life policies is forecast to increase by an average of 14% a year from 2003 to 2007, from 11.5 million to 19.5 million, now that the tax deduction on each policy has increased to 50,000 baht, according to Sutti Rajitrangsarn, president of the Thai Life Assurance Association.

With a larger market base and new products and services such as unit- linked products and marketing channels for bancassurance, it is important for sales agents to keep abreast of new technology and developments in business cycles.

Agents will have to compete with bank officers in the bancassurance services, which are expected to be available at many bank branches in the near future.

The Thai Life Underwriters' Association reported that only about 30% of the 380,000 sales agents in the industry worked full-time and this could result in problems in the industry.

There already have been complaints filed with the Insurance Department against sales agents who allegedly misled customers by inducing them to deposit money with insurance companies

This has prompted the department to redesign its examination procedures for sales agents and to place increased emphasis on ethics.

NEW PRODUCTS IN PIPELINE
Long-awaited unit-linked products are expected to enter the market in 2003 after the Insurance Department and the Securities Exchange Commission (SEC) have completed all of the necessary legal formalities.

Earned premiums from unit-linked products would be divided into two portions.

The first amount is for life coverage, for which the insurance company bears the risk when investing the money.

The second amount is for policyholders to invest their premiums in a range of options of varying risk under the management of asset management companies with operating licences from the SEC.

The SEC would supervise the activities of the second group including issuing licences for financial advisers who sell unit trusts to insurance policyholders.After months of consideration, the SEC decided it would be better for the insurers to hire asset management companies to operate the portfolios of unit-linked products instead of allowing the insurers to apply for private fund licences to manage the portfolios themselves.There are 15 licensed asset management companies and many have close links with life insurance companies

It is anticipated that unit-linked products would enter the market in the first quarter of 2003.

Staff of insurers such as American International Assurance, Bangkok Life Insurance, Nationwide Insurance, Thai Life Insurance, and Muang Thai Life Assurance have applied for financial advisers' licences.

Unit-linked endowment policies are suitable for people who wish to invest their premiums for a long period as well as taking out life insurance.

Given the lower returns, it is an option for policyholders to earn addition income with life coverage remaining unchanged.

AUTOS SPUR NON-LIFE GAINS
The surge of automobile sales and the continued improvement in the property sector will ensure Thailand's non-life insurance industry enjoys expansion for another year.

Premiums in the sector are set to rise between 5.3% and 8.7% to 64-66 billion baht in 2003, according to the research division of Thai Reinsurance Plc.

The industry could see a rise of more than 10% year-on-year to 60 billion baht in income by the end of 2002 after experiencing 13.8% growth in the first half of the year to 30.4 billion baht.

A major factor behind the high growth in 2002 has been the 200% rise in premiums for the aviation industry following the attacks of Sept 11, 2001

Aviation premiums are not expected to rise so rapidly in 2003 and growth would tend to slow unless there was an unexpected catastrophe.

The fire insurance industry is expected to grow because insurance premiums grow with the increase in consumer assets, particularly property

Premiums from fire insurance expanded by 9% to 4.5 billion baht in the first six months of 2002 and were on target to reach 8.5 billion by year-end

Further growth is anticipated next year as the premiums for all risks would rise slightly, drawing in a further nine billion baht for a rise of 5.8%.

In the first half of 2002, premiums in the miscellaneous category (including aviation risk) showed substantial growth of 50% to about seven billion baht but a decline was expected in the second half.

The anticipated full-year total of 15.9 billion baht in premiums would be a 25% rise.

Next year, premiums from the miscellaneous segment will be 16.9 billion to 17.3 billion baht, a rise of 6.5% to 9% depending on revenue from aviation products.

The country's sluggish exports affected marine and cargo insurance significantly, with only 1.38% expansion in the first half to 1.3 billion baht since export value was down 2.1% year-on- year.

However, improved exports in the second half were expected to result in an annual increase of 4-4.5% this year, ensuring marine insurance premiums would reach 2.6 billion baht by year-end.

Premiums from inbound and outbound cargoes account for about 90% of marine insurance.

The increase in automobile sales of about 40% to some 410,000 units was expected to result in auto insurance premiums topping 33 billion baht, a 5% rise over 2001.

New car sales helped boost premiums for voluntary insurance to 13.4 billion baht in the first half of 2002, and the figure was expected to double by year-end.

For compulsory insurance, the revision of premium rates by the Commerce Ministry in April resulted in a 12% drop in business to 3.34 billion baht in premiums.

The contraction for the entire year would be about 6% for a total of about seven billion baht in premium revenue.

Car sales are expected to grow in 2003 but more slowly, and the stiff competition among auto insurers is expected to continue with service quality a necessity for success.