Government
Control and Legislation
Regulation
Insurance Legislation
There are three laws governing
directly the insurance industry:
• Non-Life Insurance Act 1992
• Life Insurance Act 1992
• Protection for Motor Vehicle Accident
Victims Act 1992
In addition, Sections 861 to 888 of the
Thai Civil and Commercial Code set out the
basic terms of Non-Life insurance contracts,
such as the definition of an insurance loss
and subrogation rights against third parties.
Future Legislative Changes
Two of the key percentages in Thai
insurance, namely the 10% solvency margin
and the 25% ceiling on foreign ownership,
are enshrined in the 1992 Non-Life Insurance
Act, and can only be amended by further
Act of Parliament. The Department of Insurance
would like control of these figures transferred
from Parliament to the Ministry of Commerce.
This would allow the Insurance Commissioner
to fine-tune the balance between domestic
and foreign capital in the industry, and
ensure that the local companies are prepared
for the eventual opening of the market to
foreign competition. The draft amendment
is now in the parliament and will take sometime
to be passed. The major proposed amendments
are the foreign shareholding of up to 49%
(from presently 25%), the empowerment of
the minister in charge to set up minimum
insurance fund levels and the limitation
of underwriting expenses.
Compulsory Insurances
The two compulsory classes are
Vehicle Accident Insurance and Workmen's
Compensation for firms employing 1 people
or above. The latter is largely nationalized
under the terms of the Social Security Act
1990.
Tariff and Non-Tariff Situation
General
Thailand has traditionally been
a highly regulated market, subject both
to class tariffs and to supervisory approval
of individual companies' non-tariff rating
schedules. As elsewhere in the region, the
tariff system is gradually unraveling, though
there are no official plans for wholesale
"detariffication". The current
situation may be summarized as follows:
Property
Property insurance rates are subject
to a strict tariff calculated and enforced
by the Department of Insurance. Insurance
companies are obliged to submit copies of
all policies issued to the Department of
Insurance so that adherence to the tariff
can be checked. Market wordings are promulgated
by the Department of Insurance, and any
non-standard wordings, whether required
by insurance companies or by individual
insureds such as foreign multi-nationals,
have to be submitted for approval.
The other non-tariff mechanism is the Industrial
All Risks (IAR) policy. Department of Insurance
announced a new set of IAR rating rules
in May 1999. Rates are mainly based on the
site of sum insured. There are 3 categories
as follows:
1. A policy having sum insured less than
Bht 300M must carry premium rate not less
than 105% of fire rates plus minimum rates
for all additional perils as specified in
the fire tariff.
2. A policy having sum insured between Bht
300-Bht 2,000M must carry a premium rate
not less than 0.09% and not more than 2.5%of
annual sum insured.
In case the insured agrees to have a deductible
the insurer will have to reduce the premium
by the amount of the deductible. In any
event, the final rate must not be less than
0.05%
3. A policy having a sum insured exceeding
Bht 2,000M must be submitted for approval
on a case by case basis.
The last tariff revision took place on 1st
April 2000. Rates for Private Dwellings
will be reduced substantially and there
will be selective amendments to industrial
Fire rates. Market sources fear that the
overall reduction in Fire income could be
as much as 25%.
Motor
Compulsory Motor Accident insurance (limited
Bodily Injury cover only) is subject to
statutory rating.
The new motor tariff for comprehensive cover
was introduced in April 2002. More rating
factors such as age of driver, make of vehicle
and name or unnamed driver are taken into
consideration when calculating premium.
Marine Cargo
Only a minimum rate is imposed.
Generally insurers regards marine cargo
as a free-rating market.
Personal Accident
A new PA tariff was introduced in April
2000. Originally the PA tariff was just
minimum and advisory.
Taxes and Charges
The Insurance industry is now included in
the VAT system. Only Personal Accident insurance
falls under the old special business tax.
Government Supervision
Supervisory Authority
The supervisory authority is the Department
of Insurance which is part of the Ministry
of Commerce. The current Insurance Commissioner
and Director General of the Department of
Insurance is Mr.Norawat Suwan.
The 1992 Non-Life Insurance Act confers
considerable powers upon the Ministry of
Commerce. These may be summarized as follows:
1. Authorization of new insurance companies,
subject to the consent of the Cabinet
2. Authorization for foreign companies to
establish branches, subject to the consent
of the Cabinet
3. Issue of licenses to insurance companies,
brokers and agents
4. Determining the amounts and composition
of security deposits, policy reserves and
capital funds
5. Authorization for insurance company mergers
6. Promulgation of investment regulations
7. Revocation of licenses if companies'
liabilities exceed their assets, or if companies
violate the law, cease operations or unjustifiably
delay the payment of claims
8. Approval of types and contents of policies
and premium rates
9. Power to instruct insurers to increase
their capital
10. Authority to set commission rates
11. Authority to approve reinsurance arrangements
The Department of Insurance is made up of
the Office of Secretary, the Technical and
Statistical Division, the Life Insurance
Division, the Non-Life Insurance Division,
the Legal Division, the Examination and
Supervision Division, the Office for the
Protection of Motor Vehicle Accident Victims
and the office for the Protection of the
Insured. The Department employs around 600
staff, most of them engaged in the administration
of the Protection of Motor Vehicle Accident
Victims Act.
Market Insolvencies
Reserving for IBNR (Incurred But Not Reported)
was introduced by Department of Insurance
in 1998 with a view to making sure that
the industry as a whole is sufficiently
reserved.
Annual Returns
All insurers must submit detailed
annual returns to the Insurance Commissioner
within 5 months of the end of each calendar
year. They are also required to submit monthly
reports of their financial position and
business written.
Establishing a Local Company
In 1995 the Ministry of Commerce
invited applications for new insurance licenses
for the first time since 1983. The basic
requirements of the 1995 licensing round
were as follows:
1. Minimum paid-up capital of THB 300M (US$
7.5million)
2. Cash deposit or bank guarantee for 5%
of the registered capital
3. Directors not to be linked to any existing
insurance company
4. Minimum 75% Thai ownership and three
out of four Thai directors
5. 25% of shares to be held by the founders
of the business and not to be sold or transferred
within 3 years of obtaining the license.
12 companies were finally granted licenses.
Admitted/Non-Admitted Companies
Insurance
There is no legal prohibition against
Thai insureds placing their business directly
with foreign insurance companies. It is
however illegal for Thai-registered insurance
brokers to solicit or place direct business
with non-admitted insurers. The penalty
for doing so would be revocation of the
broker's license.
Despite the freedom to insure abroad, there
is said to be very little non-admitted business
outside the Marine market. All multi-nationals
are said to have either local fronting arrangements
or genuine local insurance. The practical
advantages of doing so are partly that it
allows them to enjoy the services of a broker,
and partly that foreign language policy
wordings can only be brought before the
courts in Thai translation.
Reinsurance
Local ceding companies must submit
full details of their reinsurance programmes
to the Insurance Commissioner for approval
within one month of their Treaty renewals.
The Commissioner can require ceding companies
to cancel and replace Treaty lines if he
is not satisfied with the security.
Reinsurers are not required to put up deposits.
Legal System
Court Procedure
There are three levels of courts:
Courts of First Instance, Courts of Appeal,
which determine questions of law, and under
certain circumstances, questions of fact,
and the Dika Court (Supreme Court). Jury
trial is not available, and all issues of
law and fact are determined by one or more
judges. Costs incurred by the winning side
in an action, including lawyer's fee, are
borne
by the losing party.
The limitation period for civil claims based
on wilful or negligent damage to person
or property is one year from the date the
wrongful action and/or the identity of the
actor becomes known to the injured party,
but not later than 10 years from the date
of the alleged act.
If a claim becomes subject to legal jurisdiction,
the delay in settlement can be 5 years or
more.
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