Steady demand for life products has continued to underpin growth in Thailand’s insurance market, with shifting demographics and government efforts to boost personal and retirement coverage providing opportunities for insurers.
Life insurance premiums totalled BT441bn ($13.5bn) in the first three quarters of the year, a year-on-year increase of 6.4%, according to the Thai Life Assurance Association (TLAA).
The performance puts the segment on track to exceed full-year forecasts of BT600bn ($18.4bn), as set out by the Office of Insurance Commission (OIC), the market regulator. It is also above the Ministry of Finance’s projections for broader economic growth, with national GDP expected to expand at a rate of 3.8% this year.
In contrast, however, the OIC has predicted non-life premiums will rise by just 1.6%.
Ageing population a factor in insurance growth
Rising demand for life products is welcome news for the government, which has worked to improve life insurance penetration and provident fund coverage in light of shifting national demographic trends.
According to the latest World Bank estimate released in April last year, 25% of the Thai population will be 65 years of age or older by 2040, compared to just 10% in 2015, making Thailand one of the fastest-ageing countries in the region.
At the same time, the number of Thais active in the workforce will fall by 10% by 2040, resulting in a lower taxation pool. This will further reduce the state’s capacity to support those in retirement, particularly at a time when demand for health and social services will be rising.
According to projections from government agencies, the state’s contribution to existing retirement funds, including for state employees, will need to increase by more than 140% between 2016 and 2024 to reach BT698bn ($21.4bn).
The shifting demographics present a big opportunity for insurers, according to Michael Plaxton, CEO of insurance firm FWD Thailand.
“Health insurance for the elderly is a big untapped market; the over-60 group represents 5% of the client base,” he told OBG. “However, insurance companies are bad at investing in new products tailored for the ageing population.”
Compulsory retirement fund to boost capital market liquidity
Although Thailand’s ageing population will place pressure on state resources, it also provides new economic opportunities as insurers look to invest premiums. This could see capital market liquidity improve – particularly following the introduction of a new compulsory retirement fund next year, which forms part of the government’s response to the ageing workforce.
Under the proposal approved by the Cabinet in February, both employers and employees will be obliged to pay into a mandatory provident fund (MPF). Contributions will start at 3% of the worker’s salary, before rising to 10% within 10 years.
The upper cap for contributions will be based on a salary of BT60,000 ($1840) per month, while employers of people earning less than BT10,000 ($307) per month will be required to contribute on behalf of their employees.
Initially, the scheme will only apply to companies with at least 100 employees, though it is expected to be rolled out to smaller firms within seven years. Companies already operating retirement fund systems will not be required to implement the MPF initially; however, they could in time need to increase contributions in line with the MPF levels.
Not everyone may benefit from the new fund, however. While it makes coverage mandatory for those in the formal workforce, many Thais employed in the informal sector, along with self-employed workers and those in family businesses, are not expected to be covered by the MPF.
In addition, the proposed reforms are likely to have an impact on employers, as the MFP will ultimately increase wage and levy commitments once the scheme reaches maturity.
“Companies should review their contribution structures as this could result in higher costs for companies that pay contribution rates of lower than 3%,” Prapassorn Chaikit, director of professional services firm Willis Towers Watson Thailand, told local media earlier this year.
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