Insurance companies hit by slow economy may lower rates
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THE hapless economy has hacked the profitability of general insurance companies, which have had to turn to pricing to secure new and existing customers.
General insurance is expected to expand by only 5 per cent this year against the target of 9 per cent after the first quarter showed that the economy is growing slower than the industry had expected, Chai Sophonpanich, chief executive officer of Bangkok Insurance, said last week.
In the first three months, BKI’s new business premiums grew by 5 per cent but total premiums were up by only 1 per cent, far behind the projection of 12 per cent for the whole year.
At 12 per cent, total premiums would climb to Bt18.20 billion from Bt15 billion last year.
BKI’s total premiums might also expand by 5 per cent in line with the industry, since the company doesn’t see any positive factors that could help support premium growth.
General insurers have been relying on auto sales, government projects and private sector activities for growth, but in the first three months, new car sales dropped by 12 per cent, while government spending was less than expected.
Consumer confidence has been in a holding pattern from the fourth quarter of last year.
When demand is lower, insurers have to use pricing to encourage the customers of other companies to switch. The price war has squeezed margins.
The profit trend of insurance companies this year will be flatter than in the past.
BKI must sustain profitability by focusing on retail customers who have never used insurance products, especially personal accident and health. Those two kinds of products have room to grow compared with motor insurance.
Premiums from retail customers this year are targeted at Bt2 billion against Bt1.5 billion last year.
Insurance for new cars might witness small margins, while second class plus insurance has become more popular instead because the lower premiums are attractive to customers facing low purchasing power.
BKI emphasises first class insurance since it believes that policy provides full coverage and is the choice of customers who value service quality.
As a major insurance company, BKI has |more cost advantages than small companies. |It also has statistics that tell it what kind of |policies are continuing to generate healthy |margins and what premium rates would be appropriate in case the company has to bid on projects.
