Recent Development of Life Insurance in Thailand and Anticipated Future Development

Historical Background

Very little is known of the early history of life insurance in Thailand. From the files of Sun Life Insurance Company (courtesy of Ms. E. Gibson, Sun Life's librarian in Montreal, Canada, and Mr. A. L. Wright, F.S.A., Asst. VP of the Manufacturers Life of Toronto, Canada), Directors decided to extend their operations to Burma, Java, and Siam; later, on 12th January, 1900 Mr. Jas A. D. McGain was appointed Manager. At that time there were already some policies outstanding.

It is not known who was the first policyholder. Sometime later, when business picked up, a district office was set up with Mr. A.V.M. Darup as District Manager. The Winsor Company was appointed its representative and remained so for 17 years prior to May 19, 1915. The volume of sales was very small, however, only around 5-10 policies per month, mostly to foreigners and Thais who had been educated abroad.

When the war came to Thailand in 1941, Mr. H. B. Small was Manager. Business had to be suspended and the staff left the country. After the war Sun Life resumed its Bangkok business as of February 15, 1947. However, in 1949 the Thai Government enacted a bill known as Section 17 of the Commercial Code requiring life companies to keep in deposit equal to one third of premium income for the premium year until a maximum of Baht 1 million (or US$ 25,000 at the rate of exchange then) should be reached. Sun Life did not think it would pay for them to continue due to the low volume of business and decided to withdraw its operation from Bangkok on November 30, 1949.

Besides the Sun Life Company there was also another major Canadian Life Company, The Manufacturers Life Insurance Company of Toronto, which opened offices in Siam at the same time as the Sun Life. The Manufacturers decided to extend its operations to the Far East in 1897 and to Siam one year later with Winsor and Company as its representative. It was not until January 23, 1902, however, that the first policy was sold (to whom is not known). Policies were written in local currencies (tical or baht) as well as in pounds sterling and in U.S. dollars. As of December 31, 1940, the total sum assured amounted to a little more that Baht 2 million with 365 policies in force. During the war business ceased temporarily but resumed operation again in December 1946 with the Anglo-Thai Corporation continuing as its representative. An analysis of its business record as of December 31, 1948 shows that 88% of the policies in force were in Thai ticals and the balance in foreign currencies. As in the case of Sun Life, the Manufacturers also withdrew its operation from Thailand when legislation was introduced in 1947 requiring a deposit of one million baht in cash or government bonds.

Four other companies, Federal Life Insurance of Ontario, Canada in 1913, the China Underwriter Life Co. and the Great Eastern Life in 1930 as well as the U.S. Life Company of N.Y. in 1947 made serious attempts to start business in Thailand. The Borneo Company was appointed by Federal Life as its representative. There is no further record of operations of these companies, however.

We may conclude that even though life insurance had its start in Thailand as early as 1895 the amount of insurance written during the following 50 years was anything but extensive. It was estimated that fewer than 3,000 policies had been sold by all foreign companies during the entire period. The companies were all foreign.

The Founding of Thai Life Companies: Pioneer Days

In anticipation of the withdrawal of foreign companies, a number of domestic companies came onto the scene to fill in the need for life insurance by the public. Thai Life Assurance Company under the Chairmanship of Chao Phraya Srithamathibetr (Chitr Na Songkla) was the first Thai company to be incorporated. This was in 1942. Soon afterwards, some 12 other companies followed, including The American International Assurance with headquarter in Hong Kong and China Life Underwriters which now returned following its termination of operations in 1932. The remaining ten were Thai.

The difficulties facing the new Thai life companies cannot be exaggerated. Capital was almost non-existent and commanded an exorbitant rate of interest. The average income of Thai families was far from adequate even to support the needs of its members, let alone to have something left over for insurance premiums. Besides, there was the almost total misunderstanding of the nature of insurance business on the part of the industry itself, and experience shared previously by life companies all over the world. Premiums were mistaken as income by the company and no adequate reserves to meet obligations in later Seats were set up. The inescapable consequence was the failure on the part of two domestic companies, Capital life in 1964 and Oriental Life in 1968.

The shock resulting from the collapse of these two companies, involving more than 10,000 policy holders, had long lasting effects on the public as will be seen from statistics of new purchases of life insurance during the to] lowing years. It took no less than 5 years from the collapse of Oriental life for the number of policies purchased to reach the level of 1968.

The failure of Capital Life also prompted the passage in 1967 of the first modern insurance law of Thailand. Among other things, the law prescribed a minimum standard of legal reserves and regulations for investment. The passage of this law reminds us of the Armstrong Investigation in 1906 in the United States, after which the insurance industry began to grow by leaps and bounds until it achieved the prominence it has today. In a similar manner, in Thailand, insurance began to move ahead rapidly beginning in 1973 after the public had recovered from the shock suffered from the failures of the decade past.

Recent Development of Life Insurance in Thailand

Today the life insurance industry is playing an increasingly important role on the Thai financial scene despite adverse economic conditions resulting from an increased rate of inflation and the economic decline that began in 1973. Thus the traditional view that life insurance business is relatively non-cyclical is confirmed, at least as far as Thailand is concerned.

The substantial increase in the rates of interest from investments has enabled the insurance companies to meet the increasing cost of doing business. The average amount of insurance per policy for ordinary life, which has increased appreciably during the past decade, has done much to help the companies to continue to grow at a relatively satisfactory rate in these present hard times. Thai families bought an estimated 5,282 million baht (US$ 264 million) worth of life insurance in 1975, registering an increase of 35% over 1974.

An analysis of the composition of life policies in force shows that, although in terms of the number of policies, approximately 87 percent are industrial life, the financial mainstay is the ordinary type where the average sum assured per policy is about 70,000 baht (US $ 3,500) as compared to only 9,000 baht (US$ 450) per industrial policy. The relative importance of each type of policy may be seen very clearly from Table 1.

While it may be true that as a source of capital mobilization, the ordinary type does more than the industrial, at the same time it is true that for developing countries the need for the industrial type will remain as long as the average income per family is what it is. Group insurance, for instance, should play a much greater role than it does at present, which is hardly any.

Each type of policy has its own market and should be expanded to the fullest extent. The market for life insurance in Thailand is still wide open.

The number of policies in force as of December 31,1975 was 556,957 with a total face value of 12,907.7 million baht (US$ 645.4 million) This is an increase of 21 per cent compared to 492,669 policies with a total face value of 10,663.1 million baht (US$ 533.2 million) in 1974.

Type Number of
Amount of
(million baht)
Ordinary 33,347 2,278.9
Industrial 224,061 2,715.6
Group 68 287.9
Total 257,476 5,282.3

(all monetary amounts in millions of baht)
Amount of 
in Force
Payments of
1955 197.6 1,966.5 134.0 11.18
1965 1,304.6 5,002.8 490.0 47.89
1975 5,282.3 12,907.7 2,364.6 244.60

During the year 1975 life insurance companies paid benefits amounting to 244.6 million baht (US $12.2 million), which is approximately 25% more than the year before. Of the 1975 payments, 51.6 million baht went to beneficiaries of the insured as death benefits. The remainder, 193.1 million baht or 79 per cent of the total, went to the policyholders themselves in the form of cash surrender values, matured benefits, dividends and disability benefits.

Total assets of the life companies as of December 31, 1975, amounted to 2,346.6 million baht, 594.8 million baht over the previous year. Life investments are spread over every phase of the Thai economy and social structure--government bonds, mortgages, corporate bonds, and real estate-- with special emphasis on long term investments. These investments bring in income to the companies, which in turn is passed on to the policyholders as dividends and lower premium rates.

Although the life insurance industry has made some progress since the first Thai life insurance company was established on January 22, 1942, it must be admitted that the industry itself is still very much in the development stage. As financial institution life insurance has yet to assume the important position it should hold in the financial market. At present the role it plays remains surprisingly minor considering the fact that life insurance had its start exactly 80 years ago.

A survey conducted by ECAFE (now ESCAP) twelve years ago on the amount of family savings which went to purchase life insurance for countries in this region clearly indicated that, as a saving institution, life insurance is far from popular yet. The ratio for Thailand was only 0.5 percent compared to 15 percent in the Philippines, a nation with a similar economy. But there has been improvement during those 12 years: 4-5% increase -- not good enough.

In 1974, the ratio of the amount of insurance to national income was a mere 0.5 per cent as compared to 11 per cent for Taiwan and 150 per cent for the United States. Japan's ratio was 161 per cent.

All this clearly indicates that the market for life insurance in Thailand is still wide open. Group insurance, for example, can within a few years easily surpass ordinary life insurance in terms of sums assured once there is more awareness on the part of business concerns of the enormous benefits derived from group insurance in terms of better relationships between employer and employee, with its concomitant increase in per capita production. This has certainly been the experience abroad, not only in Western countries, but also in Southeast Asia as well, especially in the Philippines.

Why is it that we have not been growing as we should? What are the obstacles?


Lack of understanding by the public. Contrary to general belief, life insurance should be given first priority as a means of investment, even before bank deposits or any other kind of investment. This is because life insurance is the only means by which an estate can be built overnight. The public simply does not realize this fact and consequently the market for life insurance is limited. A more intensive public relations program on the part of the Life Insurance Association and the individual life insurance companies concerned is urgently called for.

Fortunately the Government has passed the Social Security Act which is to take effect about the middle of 1976. Although the average citizen does not realize it, social security will increase insurance awareness on the part of the general public instead of competing with private life insurance. Once this understanding is achieved substantial rise in new insurance business with an accompanying reduction of the lapse rate will follow.


The low income of the average Thai family relative to the high cost of living. This is self-explanatory and needs little elaboration. Life insurance is a form of saving. In developing countries, such as Thailand, where the income is low there is hardly any money left over. When there is an improvement in the distribution of national income, a substantial increase in new purchases of life insurance will naturally follow.


The poor quality of policies and subsequent high lapse rates. This last obstacle is perhaps the most serious of all and needs immediate attention. Policies that have been sold in the past are often of such poor quality that they result in high lapse rates. There are many factors involved, including high pressure selling and poor underwriting. First year lapse rates run as high as 40 to 50 per cent and about 20 per cent of whatever is left disappears in the second year. It is not realized by the firms themselves that non-renewal of policies in the first year almost always results in a financial loss to the company because of the high first year expenses.

It is also a loss to the person insured, due to the relatively high cost of premium compared to the short period of protection he receives. The agent who sold the policy also suffers a financial loss in terms of renewal commission.

The saddest aspect of all this is that the person insured harbours deep resentment because he feels that he has been cheated by the company as well as by the agent, not realizing that in fact the company actually loses on the deal. Thus it is probably true that of this third problem facing Thailand's life insurance industry the poor quality of the policies sold to the insured -- is the most serious obstacle to growth in the nation.

The solution is not easy and requires the co-operation of every party concerned the agents, the private companies, and the Government. Here again, the emphasis is probably on the agent. First, the quality of the agents themselves must be raised through more rigorous training programs and education in life insurance underwriting principles and practice. The quality of the product can only be as good as the quality of the agents. They must be made to understand that each and every policy that lapses in the first year is a loss to all concerned. Before any agent is accepted, he or she should be carefully screened. References should be required as an important part of his application; these should be most carefully considered.

Once the problem of excessive lapses is solved, other obstacles will automatically disappear. The higher quality of the product will result in lower cost of administration, larger renewal premiums, and thus greater income from investments. The insured will be happier, since he can more easily retain insurance protection for his family. This will help boost the growth of the life insurance industry.

Anticipated future development

There are five major factors that occurred during the decade that will continue to affect future development of life insurance industry in Thailand - the passage of the Insurance Supervision Act of 1967, inflation during the 70's, better public response to group life and health insurance, the recent change in Government investment regulations which substantially widens the formerly extremely narrow scope of investment by life insurance companies. These should increase the average rate of return on invested assets to a more appreciable level and fifthly there has been in very recent years the appearance of some 130 financial companies all competing strongly for the savings of the public.

Prior to the enactment of the Insurance Law in 1967 the life insurance
industry was very loosely controlled under a few sections of the Commercial Code. There were no requirements of any kind concerning such essential factors affecting financial stability as mortality tables, non-forfeiture benefits, minimum reserve valuation basis, etc.

The disastrous consequences that followed were inevitable as already mentioned. Since the passage of the 1967 law the attitude of the public towards life insurance has gradually been changing for the better. Since then there has been greater support from the government. Premium of up to 4,000 baht is deductible from income tax. Another important gesture from authorities to assist the insurance industry was the recent passage of Decree No.6 which now allows insurance companies to invest much more of their invested assets on securities listed on the Security Exchange of Thailand.

The growing awareness of the benefits of group life and health insurance among the general public will undoubtedly favor the future rapid growth and thus enhance the importance of life insurance as a financial institution.

On the other hand, certain events of the past decade have not been favorable to the growth of life insurance. Along with other countries of the world, inflation has become a major economic problem for Thailand, although not as serious as in some of her neighboring countries, thanks to record-breaking agricultural production. Average inflation for the decade averaged about 8% per annum but for a few years the country experienced double-digit inflation. Nevertheless, the decline in the value of money has been one of the insoluble obstacles our life insurance salesman has to contend with. To date Thailand has not as yet available any inflation hedge type of policies as do many of the developed countries. However, at least one local company has decided to design a consumer price index linked type of policy in the near future, probably sometime in 1977. Other types of linked typed policies will follow suit when feasible.

Finally, competition from other types of financial institution for saving funds, especially from some 130 financial companies all over the country is becoming more serious. Competition also from 30 commercial banks and the saving bank which at the same time sell certain types of life insurance.


Although life insurance had its start in Thailand as early as 1895 when the Sun Life Assurance Company of Canda decided to extend its operation to include Siam, the amount of insurance written during the following 50 years was never extensive -- estimated to be less than 3000 policies in force, Before World War II all life companies were foreign. With the withdrawal of these foreign companies during the war, Thai companies came on to the scene, led by the Thai Life Assurance Company in 1942 and followed by 9 others during the following years before the Government banned further companies from operation.

Prior to 1967 official control of life insurance was nominal. The inevitable result was two failures: in 1964, Capital Life and in 1968, Oriental Life. This was a tragic setback for the life insurance industry as a whole and it took no less than 5 years to regain the faith of the public.

Since the enactment of the Life Insurance Super-vision law in 1967 the public has become more responsive to the idea of life insurance as a financial institution. They are gradually beginning to realize that it should occupy the highest priority in their savings plan as the only way by which an immediate estate can be built.

Recent developments in the life insurance field in Thailand have been encouraging with ever increasing support from the Government. They recently passed more liberal regulations relating to investment and premiums deductible as expenses. There has also been growing awareness on the part of the public for the need of group life and health insurance.

Social security for the benefit of employees in the private sector is also sure to come in the very near future.

There are certain major obstacles that must be overcome if satisfactory growth is to be achieved -- the high rate of lapsation, inflation, and competition for funds from other saving institutions. There are no less than some 130 financial companies offering at least 10% rate of interest or more per annum.

At the present time there are no index-linked types of life insurance available, but at least one local company will market a consumer price index-linked soon, perhaps during 1977, to be followed by more sophisticated types when our stock market is better developed. The life insurance market in Thailand is wide open for all types of policies.

Bundhit Kantabutra