Outlook for life insurance business 2022: Opportunity to restore purchasing power in line with economic recovery (Current Issue No.3307)

Life insurance business saw a slight positive turn in 2021, after undergoing a contraction for two consecutive years. This growth can be attributed to increased sales of new insurance policies, particularly single-premium life insurance, while renewal year premium has shown no growth. While life insurance business should continue to be in a consolidation period in 2022 – consistent with the previous year due to the large quantity of matured insurance policies that still provide coverage, the number of potential clients with sufficient purchasing power may exceed expectations, especially if Thailand’s economy can expand in line with the Office of National Economic and Social Development Council (NESDC)’s projection of 3.5 to 4.5 percent, as opposed to the 1.6-percent growth seen in 2021. Focus should be on inflation levels and rising interest rates as both factors could affect Thais’ purchasing power directly and indirectly. KResearch projects that insurance companies will attempt to maintain last year’s growth rate in 2022, which means securing sales growth of new business premium by at least 7 percent.

However, the interim period before the implementation of new Thai Financial Reporting Standards (TFRS) on January 1, 2024, could challenge life insurance businesses’ competency as they adjust the structure of their main products to widely accepted standards. The years 2022 and 2023 will likely be a key period for the development and promotion of new insurance products that offer increased coverage. Meanwhile, endowment plans will tend to decline as customers increasingly switch to participating policies or investment-linked plans like Unit-Linked and Universal-Life insurance. At the same time, insurance companies should aim to develop their potential through the utilization of new technology to reach a larger number of customers and broaden their customer base, compensating for the decreasing size of insurance premium per policy.

Changes to the rules and regulations of life insurance business in 2022 will warrant close attention as it remains to be seen whether or not the Office of Insurance Commission (OIC) will raise the minimum capital adequacy ratio (CAR) from 120 percent to 140 percent as planned, this year. While it may not affect the industry as a whole, since major life insurance companies tend to maintain high average capital at around 300 percent (as of 3Q21), impacts may vary between individual companies. These businesses could face mounting challenges from predictable environmental factors like rising interest rates and conduct under new regulations in the forthcoming period amid limited purchasing power and intensifying competition, as well as unpredictable environmental factors. Awareness of their financial strength and ability to expand a customer base will allow insurance companies to adopt sound risk management in coping with potential uncertainties.