Life insurance 2020: Sharp downturn continues from last year; insurers hasten to reduce sum insured of main policies while focusing on health riders (Current Issue No.3143)

​Life insurance is among businesses that have been adversely affected by the COVID-19 pandemic. In the first seven months of 2020, life insurance premiums contracted by 3.6 percent YoY, reaching THB 329 billion. For 2020, life insurance premiums are projected to shrink in the range of 6 to 2 percent for the second consecutive year, or amount to approximately THB 574 to 599 billion, compared to the 2.6 percent  contraction, YoY, in 2019 with premiums totaling THB 611 billion. This projection is based on new business premiums which are poised to see a historic contraction of 10 to 15 percent. However, the renewal premium is likely to show signs of recovery over the remainder of 2020 after experiencing a sharp plunge last year.

Ebbing consumers' purchasing power amid a negative economic environment, and reduced attractiveness of life insurance for saving, as evidenced by the internal rate of returns (IRR) of main insurance policy - falling to around one percent  this year - will pose challenges to life insurance business which is expected to see only a feeble recovery. This is particularly true  for high-end and some middle income customers who have been affected by the COVID-19 crisis, prompting businesses to make adjustments to their products in order to gain better access to potential customers. We at KResearch expect a downward trend in the size of the sum insured of the main life insurance policy to lower the annual rate of insurance premium to a level that corresponds with the purchasing power of consumers. This move is likely to dampen growth opportunities for life insurance business in terms of volume of premiums.

Nonetheless, growing awareness of health insurance products that stems from the pandemic, an annual tax deduction of THB 25,000 via health insurance purchases and Thailand's projected status of an aged society by 2021 – all serve to indicate that health insurance premiums may have passed their lowest point in 2Q20. However, the health insurance markets are expected to grow in a limited range for the entire 2020 as long as health insurance can be sold only as a rider on main policies which are crippled by consumers' sagging purchasing power. In 1H20, growth in health insurance premiums dropped to 7 percent YoY from the average of 15 percent over the past decade (2010-2019). Close attention needs to be paid to the insurance business's request for health insurance to be allowed to be sold separately, without needing to purchase the main policy, similar to the sale of health insurance by non-life insurance companies. Should such permission be granted, the limitations brought on by the need to purchase the main policy would be eradicated.

Moreover, life insurance companies must improve their sales channels and digital services to accommodate the new operating processes and New Normal lifestyles post-COVID-19. Such improvements would help to stimulate the major sales channels via agents and bancassurance, and present an opportunity for new insurance brokers - primarily targeting customers who spend a lot of time online, including e-commerce businesses, convenience stores, top-up services and telecommunication operators. All insurers are expected to face challenges in expanding life insurance business as  interest rates in the market are likely to stay relatively low for at least another 1-2 years.