The unfolding COVID-19 pandemic has created a new record for the Thai retail insurance market with the total sales of insurance policies projected to reach more than 1 million in March 2020 alone. If so, the total sales of insurance policies overall in 2020 may top roughly 2-3 million, representing an increase of at least 20 percent in the number of insured, over the 11 million life, accident and health insurance policies that were held in 2019 (10 million non-life insurance policies and 1 million life insurance policies). This reflects the success of digital and InsurTech sales channels as a means of selling retail insurance products, in particular those that perfectly meet consumers' needs via sales channels that are not too complex for consumers.
Non-life insurance companies will gain more benefits from COVID-19 insurance than life insurance firms. KResearch expects that sales of COVID-19 insurance may account for more than 80 percent of non-life insurance policies sold, with COVID-19 insurance premiums registering at about 0.5-1.0 percent of the total premiums worth THB244 billion within the non-life insurance business in 2019. However, net premiums will eventually depend on the spread of the loss ratio and reinsurance rate in a range of 10-50 percent among non-life insurance companies because future disease infection and death rates may differ from the statistics they preliminarily assessed due to a number of variables, including the ability to control the virus outbreak and overall cooperation among members of the public. In addition, close attention must be paid to the holding of many lump sum insurance policies because it may steepen insurance risk.
However, core non-life and life insurance businesses may have to cope with multifaceted challenges during 2020, in particular the adverse economic impact from the COVID-19 pandemic as it may cause demand for other insurance products to become stagnant. In addition, there are special factors that may pressure the overall growth of premiums even though such factors may benefit customers under the current situation. These include measures introduced by the Office of Insurance Commission (OIC) to ease the adverse impact of the virus outbreak on the insured and OIC's easing business regulations for insurance companies, such as premium payment extension and premium reductions for certain insurance products at not more than 10 percent of the total premiums, such as health insurance products of life insurance companies, fire and miscellaneous insurance products of non-life insurance firms.
Given such developments, KResearch projects that the amount of premiums directly received by non-life insurance companies may fell to 0-2 percent in 2020, from the 5.2 percent growth recorded in 2019, or may slip further if the COVID-19 pandemic in Thailand and elsewhere persists beyond 1H20, thus resulting in the slowdown in all major insurance products. Although insurance companies may enjoy higher earnings from COVID-19 insurance, being a new insurance product, because its coverage and premiums are not too high, COVID-19 insurance may only help bolster the overall insurance business somewhat and will unlikely help offset the slowdown in other insurance products that are major sources of premiums, such as car insurance, marine/transportation insurance, plus insurance in the business chains.
Meanwhile, the life insurance business does not have a large share of the COVID-19 insurance market because COVID-19 insurance sold by life insurance companies focuses on medical expense coverage rather than lump sum payment. In addition, holders of life and health insurance policies are already entitled to COVID-19 coverage; therefore, they are not keen to purchase COVID-19 insurance and this may not significantly help bolster the overall life insurance business. At the same time, factors dictating the overall life insurance business in 2020 may inhibit life insurance companies to expand new businesses, especially there is sagging purchasing power. The downward interest rate trend will also make premiums of new insurance products costly during 2020 while lower insurance interest rate may not provide incentive to investors. The incentive to purchase new insurance products is expected to decline further because the OIC is preparing to cut its minimum interest rate used for the calculation of premiums further or to 1 percent, from the current 2 percent, to reflect market conditions.
Moreover, insurance companies will likely reduce their savings insurance portfolios, which currently account for the largest share of the insurance market, while they may find it more difficult to penetrate the unit linked insurance market because of product complexity. As a result, unit linked insurance must be sold only through a special agent, representing one of the restrictions to attract buyers, in particular if they have bad attitude or have had unpleasant experience with such an agent before.
KResearch maintains a cautious view towards the insurance business in 2020. We assess that the total premiums may shrink for the second consecutive year to 1 - 2.5 percent in 2020, against the 2.6 percent contraction reported for 2019, because the first-year premiums may grow at less than 5 percent YoY in 2020, versus the 13.7 percent growth reported for 2019. Moreover, insurance companies may have to reduce their weight in selling single premiums due to the significant impact to their capital funds. As a result, single premiums may shrink for the third consecutive year by 11- 15 percent in 2020, versus the 17.7 percent contraction seen in 2019.
To brace for such bleak prospects, insurance companies are advised to align products with consumer needs and purchasing power while also managing costs and long-term investment portfolios to sustain businesses amid economic risks. Meanwhile, lofty capital adequacy levels of life and non-life insurance companies at 361 percent and 346 percent as of the end of 2019 ensure that insurance companies overall remain stable and will likely be able to weather the crisis, going forward.
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