First published in ITIJ 110, March 2010
The relaxation of banking regulations in Thailand has resulted in the growth of bancassurance. Although the focus is currently on personal accident, health, and auto policies, there is huge potential for travel insurance products. Mick Shippen spoke with Roy Gunara from the Bank of Ayudhya Pcl. in Bangkok
In recent years, bancassurance has started to take off in Thailand. With the relaxation of laws allowing foreign companies a greater share of banks, the world’s big insurers and finance companies have bought into Thai banks. The move by Prime Minister Abhisit Vejjajiva to ease restrictions was clearly intended to help revive a flagging economy, which is at its most sluggish for a decade, by encouraging an influx of foreign cash. Although foreign ownership of Thai banks is still capped at 49 per cent, relaxation of restrictions and the clarification of somewhat ambiguous rules quickly led to closer affiliations between banks and insurers. Thailand has 14 commercial banks, including the market leaders, the Bank of Ayudhya Plc., Bangkok Bank, Siam Commercial Bank, and Kasikornbank Pcl., all of which now offer a range of insurance products.
In a recent interview, Roy Gunara, head of consumer banking at Bank of Ayudhya (BAY) spoke about the exceptional growth in the bancassurance market and BAY’s innovative products. Having worked for GE in Indonesia as head of consumer risk management, Roy was relocated from his home country to Thailand in 2001. The Indonesian national started as the executive vice president at GE Capital Thailand and the head of risk management for Thailand, and then moved to be the business leader for unsecured consumer loans. Roy joined BAY in January 2007 after GE acquired BAY shares. “Bancassurance entered the Thai market in 2002, so although insurance companies like AIA have been present here for over 50 years ago, and our bank is also 50 years old, bancassurance is reality new to the country and indeed the region,” said Roy.
With many insurance companies in Thailand being partly owned by American and European companies and also now having major shares in leading banks, bancassurance was introduced here after companies experienced its considerable success in Europe.
BAY is the fifth-largest commercial bank in Thailand with total assets of Baht735 billion and 582 branches nationwide. In 2007, BAY and GE Capital Global Banking became strategic partners with a 33-per-cent stake in the bank. The following year, BAY set an ambitious target for the growth of its bancassurance business, aiming to take advantage of the huge growth potential and increase first-year premiums by 50 per cent. During the first eight months, BAY recorded first-year premiums of 3.5 billion baht, and this year expects to achieve the target of 4 billion baht.
In a culture that places great importance on personal and business relationships, the lack of direct contact of telephone sales has always been a major obstacle for insurance companies
“Bancassurance has been welcomed by Thai banks and local consumers,” said Roy. “The main reason for its success has been that it is cheaper than a product sold through the traditional sales route of agents and banks are less pushy with a sales pitch to potential customers. It is marketed more like an off the shelf product.”
In Thailand, the majority of insurance sales have traditionally been generated through leads and cold calling by agents, or agents introduced by friends. In a culture that places great importance on personal and business relationships, the lack of direct contact of telephone sales has always been a major obstacle for insurance companies trying to increase awareness of its product and make a sale. Banks, however, have been able to bridge the gap between supplier and customer by building on existing relationship and offering a personalized service.
“Thai consumers have much more trust in banks than insurance companies so bancassurance has created greater consumer confidence,” explained Roy. “We also have the advantage of walk-in customers, most of whom are existing customers who know the staff and BAY’s high standard of service. They can enquire about a product and talk to a familiar face rather than being badgered down the phone by somebody they don’t know from a company they also don’t know anything about.”
The banks figures show that 95 per cent of insurance sales come directly through its branches, while just three per cent come from telemarketing. This response is typical of Thailand and Asian culture in general and clearly demonstrates the importance of personal contact when conducting business in the region.
Although insurance companies are generally treated with some skepticism by Thai consumers, they have clearly put trust in their bank to pick the right partner to provide bancassurance. This sector of the market is growing very quickly and with insurance penetration in Thailand at only 11 per cent, clearly the potential is enormous.
Currently BAY offers basic life insurance policies and endowment products that provide a return to policy holders. “These types of policy are particularly popular with consumers in their 30s. The fact that they will get something back at some point is attractive to them,” said Roy. “However, the highest market penetration is with auto insurance as it is mandatory when buying a car in Thailand. Health insurance is low, though, as it is provided by most employers. In the near future we intend to include health cover with personal accident (PA) insurance in order to make it more attractive.”
BAY is one of the few banks that currently offer a travel insurance product but as yet it has not proved to particularly popular when compared with PA life insurance. (One of the main reasons life insurance is so popular in Thailand is that the government gives tax benefits to those who take out a policy). “I think the low uptake of traditional insurance products clearly shows that insurance is not yet part of Thai life,” asserted Roy. “However, bancassurance has raised awareness and made considerable inroads into the untapped potential.”
BAY’s success is can also be attributed to its innovative products KRUNGSRI Auto Prompt, KRUNGSRI Cancer Prompt and KRUNGSRI PA Prompt, a personal accident insurance protection product, jointly developed by Bank of Ayudhya Pcl. and Ayudhya Insurance Pcl., and recipient of 'The Best Product Innovation Award 2009' from the Netherlands-Thai Chamber of Commerce. Key to the success has been ease of purchase, and, rather surprisingly, the packaging design. BAY decided to offer its Prompt banassurance products in a box and found that sales increased dramatically. “Every time we boxed a product they sold like hot cakes...in their thousands,” said Roy. “The innovative product simplified the whole process of buying insurance. All a customer had to do was buy a box for a set fee, take it home, make a phone call and they are insured for a year.”
with insurance penetration in Thailand at only 11 per cent, clearly the potential is enormous
KRUNGSRI PA Prompt, launched in January 2009 sold 20,000 policies in the first week simply by being packaged as a take-home box product. The choice of the name ‘prompt’ was also particularly apposite here in Thailand. Commonly Thais have difficulty pronouncing the hard endings on English words so ‘prompt’ is spoken as ‘prom’, a word that also means ‘ready’ in Thai language. With a set price of 299 baht per box (around £6), KRUNGSRI PA Prompt also appeals to customers wanting insurance cover but who are also feeling the pinch of the current economic downturn. The protection period is one year starting from the day the premium payment is made. Applicants for KRUNGSRI PA Prompt must be from 1 month to 65 years of age, of Thai nationality, and with good medical records.
Travel bancassurance was also recently introduced by BAY, covering loss of life and dismemberment, permanent disability and medical expenses caused from accident, murder and assault. Available through bank branches and at airport terminals, travellers can buy either short-term or long-term cover on the spot. A boxed version of the travel insurance policy is also due to be launched by BAY in the first quarter of 2010 and expected to be a popular purchase.
The success of the boxed insurance surprised even BAY and an extra print run of the packaging had to be made in order to keep up with demand. BAY may have been the first bank in Thailand to offer this convenient and simple product but within six weeks, having got wind of its popularity, all competitor banks followed suit and quickly launched boxed products. The success is also an intriguing insight into consumer purchasing behaviour.
BAY is also planning to offer the purchase of travel insurance through its ATMs in early 2010.
“The interesting thing that our studies have shown is that customers found it difficult to visualise what they were getting when they purchased insurance. Once it was packaged in a box they felt they had something tangible – something that they can touch and take home rather than simply hand over money and sign their name at the bottom of a policy document,” explained Roy.
Continuing to innovate and simplify the purchase of insurance, BAY is also planning to offer the purchase of travel insurance through its ATMs in early 2010.
The success of bancassurance has surprised even the banks. BAY’s growth in sales from 18 per cent in 2005 to 47 per cent in 2009 is typical of other major banks.
Of course, the liberalisation of foreign ownership rules in the banking and insurance sectors are also encouraging for foreign investors. A rising consumer income and a growing middle class that are increasingly travelling abroad means that in the long term scope for the sale of travel insurance policies is particularly interesting. Success is down to understanding the local market and the customer’s preference for personal contact. “A key factor is rethinking traditional sales methods and creating a product that fits into our customers’ busy lifestyle and purchasing habits. That is why KRUNGSRI Prompt has been so successful,” says Roy.