Thai Reforms Bolster Insurance Sector’s Prospects

Updated: Aug 15, 2020

By Andrew Kemp

The government’s liberalisation efforts within the insurance sector have created new investment opportunities for foreign investors

Thailand has been striving for almost three decades to improve its insurance market, introducing various measures to bolster the sector’s operational and financial viability.

The changes have yielded positive results for the industry, with the International Monetary Fund (IMF) reporting in October 2019 that insurance sector assets had grown from 10% of the country’s gross domestic product (GDP) in 2006 to more than 22% in 2016. The body added that insurance sector assets also constituted 9% of the financial industry’s total assets.

Gross premiums written between 2008 and 2017, the IMF said, have grown at an average annual rate of 16.9%, substantially above nominal GDP growth of 9.9% over the same period. As a result, the insurance penetration ratio has increased from 3.63% in 2008 to 5.39% in 2017.

While no new licences have been issued to foreign and domestic companies in more than 20 years, the government has been working to ease the process by which foreign investors can enter the sector.

Investment opportunity

The Thai government approved the National Insurance Liberalization Plan in April 1995, leading to new insurance operator licences being awarded to local players – the first since 1982.

Since then the government has introduced a series of amendments and notifications aimed at clarifying investment rules and diversifying sources of funding for insurers.

For example, the most recent amendment to the Non-life Insurance Act 1992 and the Life Insurance Act 1992 was implemented on January 29, 2020 and significantly expanded insurers’ investment options.

Insurers are now allowed to invest in private equity, real estate, mutual funds and infrastructure trusts. They are also allowed to own stakes in companies that offer medical and long-term care as well as technology designed for the insurance sector. Moreover, the amendment also opened the door for insurers to become option writers.

Ian Johnston, a Thailand-based partner at global law firm Kennedys, said: “This [change] has enabled insurers to diversify portfolios into areas that can experience rapid gains.

Moreover, they are now free to own stakes in businesses where they have ‘Big Data’ that gives them an insight into the relevant industries. All in all, insurers and their clients have benefitted from opportunities to increase funds.”

Prior to this amendment, the biggest change to the insurance acts was implemented in March 2015, when the government relaxed rules around foreign investment within the sector.

While foreign ownership within a local insurer without specific regulatory approval remains capped at 25%, industry regulator Office of Insurance Commission (OIC) may permit non-Thai investors to own up to 49% of a company’s issued voting stoke, while up to half the board can consist of non-Thai nationals. At the same time, the Ministry of Finance received greater latitude when approving foreign investment in a greater than 49% stake.

The move to ease foreign investment restrictions was spurred by the Thai sector’s heavy dependence on domestic capital. The IMF reported that around 25% of total industry assets were foreign owned by the end of 2018, down from 31% in 2013. It noted that of the country’s 82 authorised insurers, including six foreign branch insurers, 34 had some international participation and were part of international insurance groups.

Foreign access

International insurers that want to open a representative office in Thailand are exempt from needing a foreign business licence prior to commencing operations there.

Representatives of international companies only need to register their office with the Department of Business Development (DBD) for tax and accounting purposes. The registration process is merely a formality and is not subject to official consideration. Registration is typically completed within 14 days, provided that all necessary documents have been properly filed with the DBD.

Johnston said representative offices held two major advantages for foreign investors. On one hand, he noted that opening a representative office was “refreshingly simple” compared to establishing a full presence in Thailand. Johnston added: “The steps to establishing a local office are tough and require a lot of hoops to be jumped through with no guarantee of success – even after a long process.”

On the other hand, representative offices are an ideal vehicle to “test the water” or as a temporary step. He said: “Representative offices allow (re)insurers to market products in the Thai market without falling foul of the strict regulatory environment. This also allows companies to introduce new products through this channel while awaiting approval for wordings from the OIC – which can take a notoriously long time.”

“This [change] has enabled insurers to diversify portfolios into areas that can experience rapid gains. Moreover, they are now free to own stakes in businesses where they have ‘Big Data’ that gives them an insight into the relevant industries. All in all, insurers and their clients have benefitted from opportunities to increase funds.”

Ian Johnston, Partner, Kennedys

For foreign insurers without a local branch, their representatives are allowed to work in Thailand without a work permit as long as they stay for no more than 15 days and they enter the country with a specific agenda. For longer periods or for a broader scope of work, representatives must secure non-immigrant visas.

While foreign loss adjusters may not conduct business in Thailand, they are not prevented from attending meetings or giving opinions to locally licensed adjusters. This does not mean, however, that they are allowed to operate in partnership with a local loss adjuster.

Representatives from a foreign loss adjuster must obtain a licence from the OIC in order to operate in Thailand, though certain requirements must be met in order to secure such a licence. The penalties for conducting loss adjusting activities without a licence include a fine of up to THB300,000 ($9,500) or a prison term of up to three years or even both.

As foreign investors weigh up potential commitments to the Thai insurance market, they will also need to consider the government’s endeavours to evolve the digital economy.

Preparing for the future

As noted above, the changes the government introduce in January 2020 paved the way for insurance companies to invest in new technologies as well as the medical care sector.

Commenting on the proposed changes in October 2019, OIC secretary-general Suthiphon Thaveechaiyagarn said that insurance providers needed to evolve to overcome major challenges stemming for the country’s ageing population. Investing in technological solutions as well as companies offering care to the elderly would help insurers navigate long-term economic changes.

Suthiphon said: “Insurance companies must bring new technology that is conducive to customers’ health and lifestyle and screen necessary data and information to process significant and meaningful output for their businesses. New technology will also assist with the insurance process, insurance premium calculation and new product development.”

Although technology holds the promise of improving insurers’ operational efficiencies, the expansion of digital networks as well as personal data processing and storage inevitably increases these companies’ exposure to a successful cyberattack.

As with other governments around the world, Thailand has come to recognise the risk as well as the reward offered by a digital-first economy. The Personal Data Protection Act – published on May 27, 2019 – was a response to this growing exposure.

The PDPA closely mirrors the European General Data Protection Regulation (GDPR), with all of the latter regulation’s principles relating to the processing of personal data embodied throughout the Thai legislation.

Under the act, consent in collecting personal data is considered to be a general rule and the PDPA follows GDPR’s standard in requiring a freely given, informed and unambiguous consent to the collection of data.

The act gives companies a year from date of publication to become compliant with its key provisions before they are subject to the included penalties. Amongst its various provisions, the PDPA can apply to data controllers and data processors that are located in Thailand and abroad. Moreover, the act spreads a wide net in terms of how it defines personal data and ranges from customer and employee data all the way through to data belonging to participants in market surveys.

Johnston said: “International (re)insurers have been fortunate to be able to lean on the experience of other offices and the ability to implement changes as made in other offices. For the big local (re)insurers the process has been a lot more bespoke with the need to interpret provisions as they are likely to be enforced locally. Fortunately, we too are able to lean on international experience and help our clients build effective responses.”

Thailand’s insurance market is evolving, with new legislation both opening the door to foreign investors while also placing greater data security requirements on the sector as a whole. While the sector still has challenges to overcome, it has never been easier for foreign insurers to enter the market and the direction the government is taking suggests a bright future for the insurance industry.


This article was written by Andrew Kemp for Conventus Law in association with Kennedys.

For further information on the insurance market in Thailand, please contact:

Ian Johnston, Partner, Kennedys

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