Sluggish farm sector, price war to hold down insurers’ income: BKI

First, consumer spending power in the agricultural sector is still weakening from the low prices of agricultural goods, while the second factor is a continuing price war in the non-life insurance industry.

Chairman and chief executive officer Chai Sophonpanich said the low purchasing power of people in the agricultural sector, who make up the majority of the population, will affect retailers and wholesalers, and finally will have a knock-on effect on manufacturers. Lower consumption also has an impact on the demand for insurance; therefore, the overall income of the non-life insurance industry in 2016 will not be much better than in 2015 despite the many mega-projects planned for early in the year. 

He said those insurers with the capacity to underwrite mega-projects were mostly major companies, and each project would require five to six years for completion, so annual premium income would be relatively low.

BKI expects to earn premium income of around Bt70 million to Bt80 million from mega-projects in 2016, accounting for about half of its targeted 7.4-per-cent growth.

Annual premium income from underwriting mega-projects amo-unts to between Bt400 million and Bt500 million out of total income of more than Bt200 billion.

Chai said the price war in the non-life industry was another factor pulling down total premium income because the large number of non-life insurance companies in Thailand means small and medium-sized insurers without strong brands have to reduce prices to attract customers.

The price war is expected continue for the next year or two as long as medium-sized companies do not have strong brands or innovative products to cater to consumers, Chai said.

He said there were currently 63 non-life insurance companies in the country, while 30 would be a more reasonable number. About half of the non-life firms see annual premium income of less than Bt2 billion. Average annual income would be Bt4 billion if there were only 30 companies.

When companies have more income, they have enough money to improve their services. Those with strong brands and professional staff will help reduce the price war, he said.

“In my view, the risk-based capital framework is the right solution for reducing the number of general insurance companies,” Chai said, referring to pending legislation that would raise the amount of capital an insurer is required to hold to support its operations. If the legislation passes, the requirement would rise to Bt500 million within five years from Bt30 million currently.

If this framework is passed, some companies that cannot increase their capital to comply with the regulation will close down until they can comply,” he said.

In 2016, BKI will focus on strengthening brand recognition and improving its products to tap retail clients, which is the focus segment for the company.