Insurance Outlook 10th Edition | Thailand Table of CONTENTS Editorial Note 1 Insurance Industry Overview 3 Overview of the life insurance industry in 2016 3 Overview of the non-life insurance industry in 2016 3 Insurance Business Performance 4 Life insurance companies’ performance in 2016 4 Market share of direct premiums: Life insurance sector 4 Distribution channels in the life insurance sector 9 Distribution channels in the non-life insurance sector 10 Trends and Updates 11 Asia Pacific Updates 14 M&A 17 Law and Regulation Updates 18 The Ministry of Finance’s Notification re: criteria, procedures, and conditions for non-Thai persons to hold more than 49 percent of the total voting shares sold, and for non-Thai directors to comprise more than half of the total number of directors 18 Notification re: Criteria and Methods of Issuing Insurance Policies, Offering Insurance Products, and Paying Insurance Compensation Through Electronic means for both life and non-life insurance businesses, B.E. 2560 (2017) 20 Registrar Order No. 8/2560 re: premium for installation of CCTV in motor vehicles 21 Registrar Order No. 11/2560 re: forms and content of insurance policy and attachment to the insurance policy 21 The Draft Amendments to the Life Insurance Act and the Non-Life Insurance Act 21 Draft Marine Insurance Act 22 The Personal Data Protection Bill 23 Claim / Litigation Update 24 Statement Capability 28 Insurance Outlook The insurance industry in Thailand is seeing comprehensive developments that will impact business dramatically. Implementation of the Insurance Development Plan Volume 3 for 2016-2020 has produced structural transformation necessitating redefinition of the roles of both regulators and players. The apparent slow growth of the industry is due to this essential process of redefinition, which will produce significant changes in the future. This will hopefully enhance Thailand’s prime position in the ASEAN market. In many ways, 2016 was a decisive year for Thai insurance regulation. The evolution of digital insurance was influenced by several key factors, including Thailand 4.0, the Internet of Thing and AI, bringing to the fore the necessity for a Digital Insurance Regulator. The Office of Insurance Commission (the “OIC”) has announced the goal of taking over this role. This maturation in insurance regulation prepares the Thai market and in addition, lays the foundation for rapid development alongside the international insurance market. Minimum standards of risk management and mandatory legal requirements have been explored in detail with respect to market practices in the formation of the Risk Management Committee. Although there is no concrete plan yet for the issuance of new insurance licenses, liberalization of foreign shareholding restrictions has been completed. It is believed that this will attract foreign entities interested in investing in insurance companies in Thailand, many of which are open to the participation of foreign investors. Regulation of the sale of insurance policies via electronic media has been enacted to create a viable new distribution channel. In addition to the online channel mentioned above, digital technology is being applied to initiatives facilitating Insurtech start-ups. The regulatory sandbox concept applied in the UK and Singapore has been recently introduced by the OIC in Thailand, and will enable insurers, agents, brokers and fintech/insurtech players to effectively beta test insurtech innovations so viable innovations can be readily implemented under the supervision of the OIC. The Thai insurance industry is also looking forward to the enactment of additional legislation. Proposed laws include the very first Marine Insurance Act, the draft of which is awaiting approval from the Ministry of Finance. The OIC is working to prepare three draft amendments to the current Life and Non-Life Insurance Acts, and has proposed the first draft amendment focusing on provisions under the Insurance Acts relating to loss adjusters, intermediaries and insurance fraud for the Cabinet’s consideration. The Cabinet has approved this recommendation in principle and the first draft amendment is currently under the consideration of the Council of State. The OIC is working on the second draft amendment focusing on maintenance of capital funds and administration of assets and liabilities, and the directors fit-and-proper requirements, as well as the third draft amendment relating to transfer and amalgamation of businesses. This edition of the Insurance Outlook is intended to provide a compass essential to navigating key developments within the Thai insurance industry in the past year. Researched and formulated by our Insurance Practice Group, it provides a comprehensive overview of the insurance sector in Thailand and aligns the most prominent aspects of the insurance sector with the latest reported data. It is our belief that it provides reliable direction and information crucial to a useful understanding of current market conditions and trends in the insurance industry in Thailand. Our team of insurance law experts at Baker McKenzie Bangkok maintains active dialogue with Thailand’s domestic and international insurance companies, regulatory bodies, insurance brokers, actuarial research institutes, and international investors. The portfolio of insurance services we offer (encompassing corporate/ M&A, regulatory and litigation/claims) leads the market in both breadth of scope and depth of expertise. We hope you find this guide enlightening and look forward to furthering our key role within the Thai insurance industry. editorial NOTE 1 Baker McKenzie 2 Insurance Outlook Overview of the life insurance industry in 2016 In 2016, we saw a slowdown in the Thai economy due to a delay in government spending on infrastructure, low confidence among the business sector, as well as continually underperforming exports which negatively impacted consumers’ purchasing power, including their ability and willingness to purchase life insurance products. In addition, life insurers have shifted their focus from savings policies (that have become less attractive due to ongoing low interest rates) to protection insurance products which have been able to command lower premiums than those of the savings policies. Nevertheless, life insurance industry is still positively affected by rising concerns over the impact of retirement which are reflected in growing demand for retirement insurance due to increasing healthcare expenses. Therefore, with both positive and negative factors considered, the life insurance industry was able to grow, albeit at a slower pace of 2.88 percent y-o-y in terms of direct premiums received, compared to 6.76 percent and 13.01 percent y-o-y recorded in 2015 and 2014, respectively. The life insurance industry is expected to grow more robustly in 2017, as the OIC projects that life insurance sector will expand approximately 7.63 percent from 2016, driven mainly by Thailand’s improving economy which is projected to grow by 3 to 4 percent and by the relatively low lifeinsurance penetration rate in Thailand. Similar to the preceding year, as a result of expected continuity of the low interest rate or only slightly higher interest rate, growth will be significantly driven by protection insurance policies instead of savings policies. Additionally, with the digital age playing a stronger role in the insurance industry by expanding access to insurance products, together with the intention to amend relevant regulations to support the insurance business’ transformation to digital technology, the life insurance industry is expected to benefit from such developments going forward. Overview of the non-life insurance industry in 2016 In early 2016, the Thai General Insurance Association (“GIA”) projected that the non-life insurance industry would grow by 3.5 percent, due to positive signs emerging for exports, household consumption, and investment expansion in the private and governmental sectors. However, in 2016, as a slowdown in Thai economy caused business owners to curtail their investments, the non-life insurance sector only grew by approximately 1.21 percent, in terms of direct premiums received. Despite external factors affecting the non-life insurance business, players in the market also chose to cut premium prices in a pitched battle for market share. Although consumers benefit from cheaper premiums, the resulting dip in direct premiums received affected expansion of the non-life insurance market. The expansion of the non-life insurance industry in 2016 was mainly driven by the growth in the automobile insurance, personal accident insurance, and other miscellaneous insurance sectors. However, premiums of industrial all-risks insurance (“IAR”) continued to decline, following a trend in the global insurance market for such premium rates to remain low for the past two to three years. In 2017, the GIA expects non-life insurance industry to grow by approximately 3 percent, aligning with the Thai economy, which is projected to grow by 3 to 4 percent. This growth will be driven in part by infrastructure investment from the government, investments from the private sector, recovery in the export sector, and the favorable expansion of tourism arrivals. Automobile insurance is still expected to constitute the majority of the industry, equaling 60 percent of premiums received. It is also anticipated to grow by 1 to 2 percent. In addition, overall growth of miscellaneous insurance is expected for 2017. Personal accident insurance and health insurance are also expected to increase by 7 to 8 percent compared to 2016. Insurance Industry OVERVIEW 3 Baker McKenzie Insurance Business PERFORMANCE Life insurance companies’ performance in 2016 Based on a statistical report from the OIC, as of the end of December 2016, the market share in terms of direct premiums for the top seven life insurance players remain unchanged from the previous year, with AIA continuing as the leader in the market, followed by Muang Thai Life, Thai Life Insurance, Krungthai AXA Life, Siam Commercial Life, Bangkok Life and Allianz Ayudhya Assurance. The five largest players altogether account for almost 72 percent market share in the life insurance market. Despite the fact that AIA is still the leader in this sector, its market share in 2016 shrank from the previous year from 21.70 to 20.03 percent, while the market shares of Muang Thai Life and Thai Life Insurance rose from the previous year. In terms of the overall life insurance performance, the total direct premiums received in the life insurance business experienced a modest growth of 2.88 percent y-o-y to Baht 548.59 billion, unlike the relatively high growth performance seen in 2015 and 2014, at 6.76 percent and 13.01 percent y-o-y, respectively. Among all types of life insurance, ordinary life insurance products accounted for the highest proportion of life insurance total direct premiums, equivalent to 86.95 percent of the total direct premiums and also significantly contributed to the growth of the overall life insurance performance, with its growth of 3.13 percent y-o-y. This is followed by the group insurance products, which contributed a 10.81 percent share of total life insurance products and grew by 2.71 percent y-o-y. The other two types of life insurance products, namely industrial and personal accident products, on the other hand, have shown a declining trend for the past three years in terms of direct premiums. Market share of direct premiums: Life insurance sector (Unit: THB 1,000) 2016 2015 Growth rate (%) Rank Company Direct Premiums Market Share (%) Direct Premiums Market Share (%) 1 AIA 109,872,117 20.03 115,709,307 21.70 (5.04) 2 Muang Thai Life 96,082,030 17.51 87,880,356 16.48 9.33 3 Thai Life Insurance 79,771,421 14.54 68,375,873 12.82 16.67 4 Krungthai AXA Life 54,393,623 9.92 54,691,356 10.26 (0.54) 5 Siam Commercial Life 52,724,094 9.61 52,970,684 9.93 (0.47) 6 Bangkok Life 42,494,407 7.75 44,840,215 8.41 (5.23) 7 Allianz Ayudhya Assurance 30,416,000 5.54 28,548,888 5.35 6.54 8 (9) FWD Life Assurance 19,228,343 3.51 17,108,002 3.21 12.39 9 (8) Prudential Life Assurance 17,637,568 3.22 17,426,524 3.27 1.21 10 Ocean Life Insurance 12,710,154 2.32 13,939,569 2.61 (8.82) Rank figures in parentheses represent ranking in 2015 Source: The Office of Insurance Commission’s Website (2017), Table 3 : Market Share of Direct Premiums - Life Insurance Business of 2016 [online] [Accessed 12 May 2017] 4 Insurance Outlook Direct premiums: Life insurance sector (based on type of insurance) Type of insurance Direct premiums (Unit: THB 1,000) 2016 2015 Increase/ (decrease) (%) (2015-2016) Increase/ (decrease) (%) (2014-2015) 1 Ordinary 476,995,982 462,532,106 3.13 7.73 2 Industrial 6,932,514 7,244,352 (4.30) (6.14) 3 Group 59,327,322 57,761,410 2.71 2.04 Total 543,255,818 527,537,868 2.98 6.86 4 Personal accident 5,333,253 5,673,327 (5.99) (2.16) Grand total 548,589,071 533,211,195 2.88 6.76 Source: The Office of Insurance Commission’s Website (2017), Table 3 : Market Share of Direct Premiums - Life Insurance Business of 2016 [online] [Accessed 12 May 2017] Direct premiums received from different types of insurance in 2016 ORDINARY 86.95% GROUP 10.81% PERSONAL ACCIDENT 0.97% INDUSTRIAL 1.26% 5 Baker McKenzie Non-life insurance companies’ performance in 2016 According to the OIC’s statistical reports, as of the end of December 2016, the ranking based on market share of total direct premiums of the top five non-life insurance companies remained the same as in 2015. These companies are Viriyah Insurance, Dhipaya Insurance, Bangkok Insurance, Muang Thai Insurance, and Synmunkong Insurance. However, Dhipaya Insurance and Synmunkong Insurance’s total premiums dipped by 11.96 percent and 9.09 percent, respectively. While top-10 rankings were largely unchanged from the previous year, there was a slight shift of position among the companies in the sixth to eighth rankings. Southeast Insurance moved up from number eight in 2015 to number six in 2016, and also had a remarkable growth rate of direct premiums received by 47.49 percent. In contrast, Safety Insurance and Tokio Marine Insurance dropped from sixth and seventh to seventh and eighth, respectively. In the automobile insurance sector, the top three companies had the same ranking as in 2015: Viriyah Insurance, Synmunkong Insurance, and Safety Insurance. The new company debuting in the top 10 in 2016 was Tokio Marine Insurance, at 10th place, up from 11th. Also, Southeast Insurance performed remarkably well, by moving up from number eight to number four, with 52.54 percent growth rate. In the miscellaneous insurance sector, rankings changed significantly in 2016. However, the top 10 companies consisted of the same players as the previous year, and the top two remained the same as the previous year: Dhipaya Insurance and Bangkok Insurance. Furthermore, Chubb Samaggi Insurance saw prominent growth, as total premiums increased by 32.15 percent, and the company moved up from number eight to number five. The total direct premiums received in the non-life insurance business in 2016 increased by only 1.21 percent compared to 2015. Despite this sluggish growth rate, the public liability insurance sector saw growth of approximately 12.84 percent. The automobile insurance sector still dominated in terms of volume, with approximately 58 percent of total non-life direct premiums received. However, its growth was only 1.46 percent, compared to 2.12 percent growth between 2014 and 2015. Market share of direct premiums: Non-life insurance sector (Unit: THB 1,000) 2016 2015 Growth rate (%) Rank Company Direct Premiums Market Share (%) Direct Premiums Market Share (%) 1 Viriyah Insurance 33,272,523 15.71 32,418,583 15.49 2.63 2 Dhipaya Insurance 19,921,863 9.41 22,628,978 10.81 (11.96) 3 Bangkok Insurance 15,479,391 7.31 15,295,768 7.31 1.20 4 Muang Thai Insurance 12,204,391 5.76 11,097,331 5.30 9.98 5 Synmunkong Insurance 9,024,736 4.26 9,927,382 4.74 (9.09) 6 (8) Southeast Insurance 9,024,341 4.26 6,118,548 2.92 47.49 7 (6) The Safety Insurance 8,863,815 4.18 9,002,723 4.30 (1.54) 8 (7) Tokio Marine Insurance 7,430,822 3.51 7,542,351 3.60 (1.48) 9 Thanachart Insurance 6,420,389 3.03 6,088,337 2.91 5.45 10 LMG Insurance 6,129,097 2.89 5,717,185 2.73 7.20 Rank figures in parentheses represent ranking in 2015 Source: The Office of Insurance Commission’s Website (2017), Table 6 : Market Share of Direct Premiums - Non-Life Insurance Business of 2016 [online] [Accessed 15 May 2017] 6 Insurance Outlook Market share of direct premiums: Automobile insurance sector (Unit: THB 1,000) 2016 2015 Growth rate (%) Rank Company Direct Premiums Market Share (%) Direct Premiums Market Share (%) 1 Viriyah Insurance 30,267,297 24.77 29,585,757 24.57 2.30 2 Synmunkong Insurance 8,200,490 6.71 9,037,243 7.50 (9.26) 3 The Safety Insurance 7,186,661 5.88 7,234,339 6.01 (0.66) 4 (8) Southeast Insurance 6,617,637 5.42 4,338,348 3.60 52.54 5 (4) Bangkok Insurance 6,602,398 5.40 6,962,235 5.78 (5.17) 6 (5) Muang Thai Insurance 6,601,762 5.40 5,855,454 4.87 12.75 7 (6) Thanachart Insurance 5,422,630 4.44 5,145,665 4.27 5.38 8 (7) LMG Insurance 5,067,077 4.15 4,715,016 3.92 7.47 9 (10) Road Accident Victims Protection 3,809,500 3.12 3,771,659 3.13 1.00 10 (11) Tokio Marine Insurance 3,487,470 2.85 3,471,204 2.89 0.47 Rank figures in parentheses represent ranking in 2015 Source: The Office of Insurance Commission’s Website (2017), Table 6 : Market Share of Direct Premiums - Non-Life Insurance Business of 2016 [online] [Accessed 15 May 2017] Market share of direct premiums: Miscellaneous insurance sector (Unit: THB 1,000) 2016 2015 Growth rate (%) Rank Company Direct Premiums Market Share (%) Direct Premiums Market Share (%) 1 Dhipaya Insurance 14,491,737 19.55 16,223,274 22.22 (10.67) 2 Bangkok Insurance 7,075,307 9.55 6,450,683 8.83 9.68 3 (4) Muang Thai Insurance 4,262,505 5.75 3,849,931 5.27 10.72 4 (3) ACE INA Overseas Insurance 3,866,522 5.22 4,090,715 5.60 (5.48) 5 (8) Chubb Samaggi Insurance 3,517,997 4.75 2,662,164 3.65 32.15 6 (5) Mitsui Sumitomo Insurance 3,458,336 4.67 3,346,808 4.58 3.33 7 (6) Tokio Marine Insurance 3,075,302 4.15 3,226,797 4.42 (4.69) 8 (7) Bupa Health Insurance 2,788,066 3.76 2,807,771 3.84 (0.70) 9 (10) Cigna Insurance 2,464,136 3.32 2,258,557 3.09 9.10 10 (9) Viriyah Insurance 2,396,600 3.23 2,293,843 3.14 4.48 Rank figures in parentheses represent ranking in 2015 Source: The Office of Insurance Commission’s Website (2017), Table 6 : Market Share of Direct Premiums - Non-Life Insurance Business of 2016 [online] [Accessed 15 May 2017] 7 Baker McKenzie Direct premiums: All non-life insurance sectors (based on type of insurance) Type of insurance Direct premiums (Unit: THB 1,000) 2016 2015 Increase/ (decrease) (%) (2015-2016) Increase/ (decrease) (%) (2014-2015) 1 Fire 10,233,267 10,484,614 (2.40) (5.21) 2 Marine and Transportation 5,267,903 5,342,974 (1.41) 0.74 3 Automobile 122,187,906 120,423,870 1.46 2.12 4 Miscellaneous 74,124,306 73,027,073 1.50 2.74 4.1 Personal Accident 26,806,367 26,308,438 1.89 6.45 4.2 Industrial All Risks 23,831,821 25,749,538 (7.45) (0.71) 4.3 Health 7,681,771 7,563,013 1.57 7.26 4.4 Public liability 2,264,347 2,006,729 12.84 3.21 4.5 Other 13,540,000 11,399,355 18.78 (0.29) Grand total 211,813,382 209,278,531 1.21 1.9 Source: The Office of Insurance Commission’s Website (2017), Table 6 : Market Share of Direct Premiums - Non-Life Insurance Business of 2016 [online] [Accessed 15 May 2017] Direct premiums received from different types of insurance in 2016 AUTOMOBILE 57.69% OTHER 6.39% PERSONAL ACCIDENT 12.66% INDUSTRIAL ALL RISK 11.25% FIRE 4.83% HEALTH 3.63% MARINE AND TRANSPORTATION 2.49% PUBLIC LIABILITY 1.07% 8 Insurance Outlook Distribution channels in the life insurance sector For operational turnover in 2016, the proportion of distribution channels for the sale of insurance products remained closely aligned to the preceding year, with the sales through agents accounting for 50.59 percent and bancassurance accounting for 42.96 percent. Bancassurance has been anticipated to become the most significant distribution channel for the life insurance industry in the future, but it has to better convince relevant authorities of its transparency before it will be able to replace the traditional ‘agent’ distribution channel. Overall, the total direct premiums received via bancassurance were Baht 243.85 billion, representing 7.32 percent growth y-o-y, while the total direct premiums received via the agent channel were Baht 287.13 billion in 2016, growing at a slower pace of 3.70 percent y-o-y when compared to the growth from the sale through bancassurance. The total direct premiums received from the broker channel in 2016 experienced significant growth of 54.36 percent resulting in the total direct premiums from this channel of Baht 14.66 billion, slightly outpacing the total direct premiums from telemarketing channel of Baht 14.46 billion which increased by only 4.04 percent y-o-y. Type of distribution channel Direct premiums received from different distribution channels (Unit: THB 1,000) 2016 2015 2014 Increase/ (decrease) (%) (from 2015-2016) Increase/ (decrease) (%) (from 2014-2015) 1 Agent 287,139,710 276,881,749 257,839,847 3.70 7.39 2 Broker 14,664,310 9,500,301 8,104,635 54.36 17.22 3 Bancassurance 243,857,523 227,224,659 207,642,118 7.32 9.43 4 Direct mail 62,919 67,005 68,288 (6.10) (1.88) 5 Telemarketing 14,463,975 13,902,670 13,179,373 4.04 5.49 6 Others 7,431,835 9,887,169 9,261,774 (24.83) 6.75 Grand total 567,620,272 537,463,553 496,096,035 5.61 8.34 Source: The Office of Insurance Commission’s Website (2017), Report on Life Insurance Underwriting of Each Type of Distribution Channel, http://www.oic.or.th/th/industry/statistic/data/34/2 [online] [Accessed 15 May 2017] Distribution channels of direct premiums in 2016 AGENT 50.59% BANCASSURANCE 42.96% BROKER 2.58% TELEMARKETING 2.55% OTHERS 1.31% DIRECT MAIL 0.01% 9 Baker McKenzie Distribution channels in the non-life insurance sector According to the OIC’s statistical reports as of 31 December 2016, the most popular means for selling nonlife insurance remained through brokers, accounting for 55.49 percent of all distribution channels. Total direct premiums received for non-life insurance sold through brokers were Baht 117.58 billion, which has fallen by 1.37 percent from 2015. Agents and bancassurance ranked second and third, accounting for 16.38 and 13.07 percent of all distribution channels, respectively. Sales of insurance products via the Internet have increased from the previous year by 55.02 percent in terms of direct premiums received. In February 2017, the OIC issued the Notification re: Criteria and Methods for Issuing Insurance Policies, Offering Insurance Products, and Paying Insurance Compensation Through Electronic Means for Life and Non-life insurance Businesses, B.E. 2560 (2017) (the “Notification”) which have become effective on 25 August 2017. The Notification regulates insurance activities – such as the offering for sale of insurance products, issuing of insurance policies, and payment of insurance compensation – via electronic channels, including over the Internet. This should encourage the sale of insurance products via the Internet. Type of distribution channel Direct premiums received from different distribution channels (Unit: THB 1,000) 2016 2015 2014 Increase/ (decrease) (%) (from 2015-2016) Increase/ (decrease) (%) (from 2014-2015) 1 Agent 34,718,953 30,621,969 30,061,449 13.38 1.86 2 Broker 117,588,895 119,227,575 118,842,654 (1.37) 0.32 3 Bancassurance 27,693,230 25,681,104 25,498,962 7.84 0.71 4 Direct mail 48 1,442 36,769 (96.67) (96.08) 5 Telemarketing 9,232,949 9,772,182 8,809,806 (5.52) 10.92 6 Walk-in 9,808,334 9,680,944 10,656,624 1.32 (9.16) 7 Worksite 12,629,550 11,993,652 10,749,958 5.30 11.57 8 Internet 161,870 104,418 1,515,510 55.02 (93.11) 9 Others 94,322 2,392,244 1,970,332 (96.06) 13.65 Grand total 211,928,152 209,475,530 208,142,064 1.17 0.64 w Source: The Office of Insurance Commission’s Website (2017), Report on Non-Life Insurance Underwriting of Each Type of Distribution Channel, http://www.oic.or.th/th/industry/statistic/data/43/2 [online] [Accessed 15 May 2017] Distribution channels of direct premiums in 2016 BROKER 55.49% AGENT 16.38% BANCASSURANCE 13.07% WORKSITE 5.96% WALK-IN 4.63% TELEMARKETING 4.36% INTERNET 0.08% DIRECT MAIL 0.00002% OTHERS 0.04% 10 Insurance Outlook 1. Thai Insurance Regulator’s Perspective on Next Steps in Insurance-Sector Liberalization The Thai insurance industry signaled a move forward to the next stage when at the A.M. Best Thailand Seminar 2016, Dr. Suthiphon Thaveechaiyagarn, secretary-general of the OIC, gave a keynote speech on the topic; “OIC Perspective on the Next Steps in InsuranceSector Liberalization.” From the regulator’s perspective, the OIC has been actively exploring the possibility of liberalizing the Thai insurance industry. The OIC’s ultimate goal is to push the Thai insurance industry towards “further liberalization.” Ordinary liberalization would not be sufficient to deal with the highly competitive environment given opportunities from the AEC and CLMV framework. Nevertheless, the OIC’s approach is not to force a sudden change to accommodate the liberalization goal, but usher gradual changes in terms of the regulatory and market environment. As such, the OIC is currently focusing on three main areas: (i) market access, (ii) market expansion, and (iii) deregulation. Speaking about market access, the OIC had amended requirements relating to foreign shareholding requirements to be both more precise and less stringent. Specifically, the current Life and Non-Life Insurance Acts give insurance companies opportunities to increase their foreign shareholding ratios to be more than 49 percent in circumstances other than undergoing a financial crisis, subject to the rules and requirements prescribed by the Minister of Finance. Such rules and requirements have already become effective in early 2017. Also, both life and non-life insurance have been removed from the list of restricted businesses under the Foreign Business Act, resulting in the Insurance Acts being the last check point before liberalization. Regarding market expansion, the OIC intends to support business expansion of insurers in Thailand to other ASEAN countries. The Investment Regulations currently allow insurers in Thailand to enter into joint venture arrangements (JVA) with local insurers where they wish to expand the business, as seen in the recently-announced official license granted in Laos to ST-MUANG THAI Insurance Co., Ltd., a JVA between Muang Thai Group of Thailand and ST Group Co of Laos. Additionally, licensed insurers in Thailand may open representative offices in other ASEAN countries, a positive indication that the OIC has been taking necessary steps to accommodate the liberalization process. Regarding deregulation, the OIC aims to focus on the deregulation of products, premiums, and commissions. However, this may require in-depth analysis, readiness assessments, and a profound understanding of technical factors, hence this process would need to carried out step-by-step. Trends and UPDATES 11 Baker McKenzie 2. Liberalizing of foreign stake in insurance companies A long wait has come to an end when the MOF has announced criteria allowing both life and non-life insurance companies to increase foreign shareholding to be more than 49 percent, and have foreign directors constitute more than half of the total number of directors. This would be a significant development for insurance companies and investors, as foreign investors and insurers look to Thailand as a base from which to expand business into the AEC, hence the Thai insurance industry would grow and improve as this happens. The mission of the OIC has been to ensure that this process takes place in the most successful manner and has recognized that greater knowledge transfer is essential to development of the industry. Increasing sources of funding through the liberalization of foreign shareholding limits was specified as an objective in the Insurance Development Plan Volume 3. Linking knowledge with expansion of investments will ensure such goals are accomplished. 3. Risk Management and the Maturation of Thailand’s Insurance Regulatory Regime The OIC has previously announced and implemented guidelines detailing the responsibilities and appropriate structure of the board of directors of an insurance company, as well as the minimum qualifications for its members. In formulating the “Guidelines Re: Composition, Qualifications, and Good Governance of Insurance Companies” (the Guidelines), the OIC has also expanded these matters to address relevant committees that report to the board of directors. Under the Guidelines, insurance companies shall form several sub-committees (i.e., audit committee, investment committee, risk management committee, nomination committee, and remuneration committee) composed of members that meet the indicated qualifications. It is worth noting that under the present regulatory regime, only the audit committee and investment committee are compulsorily required to be appointed, with the appointment of the remaining committees, in particular the risk management committee (the Risk Management Committee), only suggestions from the OIC. Since the OIC views that the essence of an insurance company’s business is to understand and manage risk, the Risk Management Committee is viewed as a key body that must be made legally compulsory. Therefore, the OIC intends to issue the Regulation regarding the Criteria, Method and Conditions on the Minimum Standard in respect of Risk Management (for both life and non-life insurance sectors) (the Risk Management Regulation). The key matter under the Risk Management Regulation is to legally require insurance companies to appoint at least five members, consisting of directors or executives possessing relevant and sufficient knowledge, as the Risk Management Committee, whose key responsibilities would be: • to prescribe the policy in respect of the risk management for the board of director’s endorsement; • to evaluate the adequacy and efficiency of risk management; and • to hold meetings and monitor on the progress of implementation of the risk management policy. 12 Insurance Outlook The Risk Management Regulation is expected to become effective soon, and indicates continuing maturation of the regulatory environment in Thailand as it further develops to enhance transparency and promote business efficiency for the insurance industry as a whole. 4. Digital Insurance In the third week of September 2016, the OIC held an annual exhibition, Insurance Week 2016, whereby one of the main topics discussed was “Moving Insurance Towards the Digital World”. The OIC will implement necessary plans to become a digital insurance regulator. This plan is in line with the government’s policy on digital economy known as “Thailand 4.0”. As a digital insurance regulator, it would facilitate insurance companies in carrying out their businesses, for example, by enabling insurance companies to file applications for products and premiums, or submit reports to the OIC, through online channels. Channels of distribution are expected to shift, although not significantly, from bancassurance arrangements, telemarketing and brokerage channels toward the use of online and mobile platforms to promote pre-sales and sales processes. The OIC has consistently monitored digital reforms in the insurance industry and aims to regulate insurance activities undertaken via electronic channels. On 26 August 2017, a notification of criteria and methods has taken effect. It applies to the use of electronic means for the issuance of insurance policies and payment of insurance compensation by both life and non-life insurance businesses. 5. Insurtech’s Support Platform Similar to the approach taken in the UK and in Singapore, the OIC has recently introduced the regulatory sandbox concept in Thailand to enable insurers, agents, and fintech/ insurtech developers to beta test their insurtech innovations and to enable such innovations to flourish under the OIC’s supervision. It is difficult to develop new initiatives under regulatory restrictions. One of the new trends is insurtech, and this platform will assist insurance companies to develop their plans to offer new initiatives and services to their customers. The use of this sandbox scheme offers more possibilities for Insurtech to be developed and, ultimately, introduced in Thailand. Interested participants may submit product and service details, plans, procedures and results to the OIC. They should be innovations that do not currently exist in Thailand and/or will improve the efficiency of existing products or services. 13 Baker McKenzie The growth in the Asia Pacific insurance market, especially in emerging countries such as Indonesia, Philippines and Vietnam, has been robust in the past year. We expect to see growth in both the life and non-life sectors to continue in 2017 and 2018. In terms of regulatory development, we saw regulators in many jurisdictions taking a more pragmatic approach to address fast-moving developments in the insurance market. In particular, attention has been paid to creating a regulatory framework for insurtech, as regulators catch up with its emergence in the insurance industry. We highlight a few areas in the insurance industry which were of particular focus in the past year. 1. Insurtech and investments in start-up companies The first area where we witnessed significant movement in regulation is insurance company’s investment in start-ups and insurtech. Many insurance companies within the region are looking to explore potential synergies and product innovations that insurtech offers, and regulators are also looking to establish oversight on such activities. In this regard, there are wide variations and developments in regulatory approaches seen across Asia Pacific. We explore below the relevant regulations related to investments in start-up companies, specifically the limitations or criteria on the types of start-up companies an insurer may invest in within some jurisdictions in the Asia Pacific region. China Insurance companies are permitted to invest in start-up companies that satisfy the prescribed conditions, including: (1) the business activities of the start-up are compliant with the industry policies of the Chinese government, and the start-up possesses the requisite qualifications to conduct the relevant business activities, (2) the start-up is at growth or maturity stage or operates within strategically new industry or industries, or has a clear IPO plan and relatively high acquisition value, (3) there is no affiliation among the insurance company, the investment institution and professional advisor involved in the investment, unless otherwise permitted by the regulator and advance reporting/disclosure has been complied with. However, the foregoing conditions are not applicable if investment in the start-up is also a regulated entity in insurance industry. The start-up companies must also comply with other prudential conditions required by the China Insurance Regulatory Commission (CIRC), and other conditions relating to the shareholding and management team. Start-up companies in which insurance companies are permitted to make direct equity investments must be (i) regulated entities in the insurance industry, (ii) financial institutions in non-insurance sectors, (iii) entities whose businesses are relevant to insurance business such as pension, medical care, auto servicing and (iv) energy enterprises, resource enterprises, and modern agricultural enterprises that are relevant to insurance business, and such enterprises are compliant with the macro policies and industry policies of the Chinese government and have stable cash flow as well as good economic performance. Asia Pacific UPDATES 14 Insurance Outlook Indonesia Indonesia does not have any specific regulations for insurers investing in start-up (insurers can invest in unlisted securities). There are no limitations or criteria on the type of startups that an insurer can invest in. However, the usual limitations on investments apply (including meeting prudential requirements and amounts invested with any one party, none of which would likely be of concern for start-ups). If the insurer believes that the establishment of a subsidiary, or its shareholding in any company, could or would have a significant impact on the insurer’s business (perhaps unlikely with a start-up), the insurer must make a report to the Financial Services Authority (Otoritas Jasa Keuangan or OJK). If the start-up falls within the insurance criteria, then it must be licensed accordingly. Singapore Investment activities by insurers are regulated under the Insurance Act (Cap. 142 of Singapore) (Insurance Act). The Monetary Authority of Singapore (MAS) regulates regulations, directions, notices and guidelines. For instance, section 30B(1) of the Insurance Act requires a licensed insurer to obtain the prior approval of MAS before obtaining a major stake in a corporation. Regulated insurers seeking to invest in or develop insurtech activities must ensure that any new activities comply with the foregoing and do not breach any existing license conditions. Taiwan The types of start-up that an insurer can invest in are limited to the following: big data analysis, interface design, software R&D, Internet and Wi-Fi businesses. Vietnam There are no specific limitations or criteria on the type of start-ups that an insurer can invest in. However, there are restrictions or caps on the insurer’s capital sources to be used for investment and how much an insurer can invest in other entities (including start-ups) in general. In addition, if the start-up requires the establishment of an IT/technology-related company, it will be subject to the requirement for company registration with relevant Department of Planning and Investment and other licensing procedures depending on the nature of the business involved. 2. Bancassurance The second area, in which we saw increased regulatory focus, is on the regulation of bancassurance. Bancassurance remains one of the most popular distribution channels for insurance products in many jurisdictions within the Asia Pacific. With the sustained use of bancassurance channel as a prominent channel of distribution, there has been increased regulatory scrutiny in countries where the regulations were previously not as direct or specific. Other than the issuance of new regulations, regulators across the region have also called for increased transparency in bancassurance arrangements. The increased regulatory oversight on bancassurance is evident in many jurisdictions within the Asia Pacific region, including Thailand. Indonesia The Financial Services Authority (Otoritas Jasa Keuangan or OJK) issued Circular Letter No. 32/SEOJK.05/2016 on the distribution channel of insurance products in cooperation with banks (bancassurance) (SE 32), which took effect on 1 September 2016. Some noteworthy provisions include: 15 Baker McKenzie • Business Models: SE 32 explains that a cooperation between a bank and an insurance company will not be categorized as bancassurance if (i) the bank is the insured party or the participant and (ii) the insured objects are the bank’s assets or employees. SE 32 further specifies that (i) product referrals under a bank’s product business model and (ii) bundled products business models are not permitted to sell investment-linked insurance products. Investment-linked insurance products can only be sold through a distribution business model if the sales are limited to money market investment portfolios and/or fixed income investment portfolios. • Requirements for Insurance Companies: To distribute products through a bancassurance channel, an insurance company must: comply with the minimum financial soundness level, not be under an administrative sanction, include the proposed bancassurance plan in the insurance company’s business plan for the year in which the bancassurance is to be implemented, and secure the relevant insurance product approval/registration from the OJK. • Exclusivity: Under Circular 12/35, when implementing the product referral model for the bank’s products, the bank must provide its customers with at least three insurance companies to choose from. SE 32 also expressly reaffirms that there can be no exclusivity between an insurance company and a bank under the product referral model linked with a bank’s products. • Termination: An insurance company must terminate or refuse to renew a bancassurance agreement: - if the bank fails to fulfill its obligations under the bancassurance agreement; and - if the OJK orders the termination of the bancassurance agreement, where the OJK considers that the bancassurance activities being carried out (i) are not in line with the provisions of the bancassurance agreement; (ii) are in violation of any laws and regulations; and (iii) have a negative impact on the insurance company’s financial condition. • Customers’ Statement on Sufficient Product Information: Specifically for the (i) distribution and (ii) bundled product business models, an insurance company is obliged to ensure that each customer receives sufficient and clear information on the insurance products (i.e., benefits, fees, commissions and risks if investment-linked) from the bank’s sales people before he/she purchases the product. If the sales are made directly (face-to-face approach), the relevant customer must provide a hard copy statement letter (with Bahasa or bilingual format and a wet signature) acknowledging that he/she has obtained sufficient information on the offered products before making the purchase. If sales are made by telemarketing (e.g., phone call), the above customer’s statement can be evidenced by a voice recording. Japan According to a report in Japan’s Nikkei newspaper, on 19 February 2016, the Financial Services Agency (the FSA) requested the Life Insurance Association of Japan (the LIAJ), the industry association of life insurance companies, improve the transparency of the commissions of bancassurance to be paid to banks. The background of this request is the FSA’s concern that excessive commissions may lead to an escalation of unnecessary sales of insurance products. It was reported that the FSA had requested the LIAJ to develop a concrete proposal on information disclosure of commissions by the end of March 2016. 16 Insurance Outlook M&A Mergers and acquisitions are expected to intensify over the next year, as foreign shareholding restrictions have been relaxed in general, with increasing stability seen in the insurance industry. No longer will foreign ownership restrictions be waived only in the case of financial difficulty, and the more ready availability of foreign capital should have a positive effect on the industry as a whole. Because the OIC has not yet decided to grant licenses for the establishment of new insurance companies, it is expected that acquisition of existing companies would remain the most viable point of entry into the Thai insurance market by foreign investors. In 2017, a major potential M&A transaction in term of life insurance sector has been explored. Siam Commercial Bank (SCB) had opened a bidding process for the sale of its stake in SCB Life. According to the news, the deal value would be around USD 3 billion, and was expected to be the largest ever insurance M&A transaction in Southeast Asia, and the biggest in Asia since August 2016, according to Thomson Reuters data. However, SCB has halted the deal to sell its stake after unsuccessful negotiations with a potential buyer, Hong Kong’s FWD Group, according to a newswire report. Currently, it is uncertain what direction SCB will take in respect of SCB Life. Therefore, we have to wait and see if there will be any further developments. In recent news, US-headquartered global health care benefits provider, Aetna, acquired the Bupa Group’s Thai business, Bupa Thailand in late July 2017 for an undisclosed sum. Established over 30 years ago, Bupa Thailand is the country’s leading specialist health insurer, with more than 300,000 members and a network of over 400 health care providers in the country. The acquisition will significantly increase Aetna’s presence in Asia, and is key to the company’s strategy to go ‘broader and deeper’ into local health care markets. Aetna is hopeful that its expertise, coupled with Bupa Thailand’s in-depth knowledge of the local health care system and culture, will ultimately offer customers in Thailand broader choices and continue to build on Bupa Thailand’s reputation for first-rate service. Bupa Thailand will continue to operate under the Bupa brand for a short time before rebranding as Aetna. 17 Baker McKenzie The Ministry of Finance’s Notification re: criteria, procedures, and conditions for non-Thai persons to hold more than 49 percent of the total voting shares sold, and for non-Thai directors to comprise more than half of the total number of directors The Life and Non-Life Insurance Acts, B.E. 2535 (1992), as amended, permit foreign shareholders to hold more than 49 percent, and have foreign directors constitute more than half of the total number of directors, with the Minister of Finance’s permission, which can be granted under the following circumstances: (1) it would improve the insurance company’s standing or operation, which exists in such a state that may cause damage to the insured or the public; (2) it would enhance the stability of the insurance company; or (3) it would enhance the stability of the insurance industry as a whole in Thailand. While a non-life insurance company (save for life insurance company) under circumstance (1) may seek the Minister of Finance’s permission pursuant to the notification providing for the relevant criteria and procedures, which became effective on 10 March 2016, seeking permission under the remaining circumstances has just been made possible under the Ministry of Finance’s Notifications re: criteria, procedures, and conditions for non-Thai persons to hold more than 49 percent of the total voting shares sold, and for non-Thai directors to comprise more than half of the total number of directors, which provides the criteria for seeking the MOF’s permission in order to enhance the stability of the insurance company and enhance the stability of the insurance industry, B.E. 2559 (2016) (the “MOF’s Notifications”). The MOF’s Notifications became effective on 18 January 2017. 1. Qualifications of the insurance company According to the MOF’s Notifications, an insurance company may be allowed to have more than 49 percent (up to 100 percent) of its shares held by non-Thai shareholders, and have non-Thai directors constitute more than half of the board when the company possesses the following qualifications: (1) having a capital adequacy ratio (CAR) at the level required by the relevant regulation prescribed by the OIC on the calculation of the capital fund; and (2) having a business plan for enhancing the stability of the insurance company and enhancing the overall stability of the insurance industry. Law and Regulation UPDATE 18 Insurance Outlook 2. Qualifications of the non-Thai shareholders Apart from the company’s qualifications, the proposed foreign shareholders must also have: (1) at least ten years’ experience and expertise related to, or supporting, an insurance business; (2) financial and operational stability, whereby the non-Thai shareholder or its parent company must receive at least an A rating from a recognized international credit rating agency, as well as having the business operation network at the international level; (3) policy for the business operation and a concrete plan for the transfer of technology and expertise in order to develop management systems and to enhance the business potential and competitive capabilities; and (4) the capability to provide financial support in order to allow the insurance company to implement the business plan. 3. Conditions after being granted a permission Once the Minister of Finance grants the permission, the following conditions must be met thereafter, otherwise the permission may be revoked: (1) The insurance company must have Total Capital Available (TCA) of not less than Baht 4 billion in case of life insurance company, and Baht 1 billion in case of non-life insurance company, at all times during its business operation. (2) The change of the shareholding ratio held by a non-Thai shareholder who has been granted the permission must be subject to the following conditions: (i) in case of a change in the shareholding ratio of non-Thai shareholders of 5 percent or more, the insurance company must report to the OIC within 30 days from the date of change; and (ii) in case of a change in the shareholding ratio of a non-Thai shareholder (who has already been granted the permission to hold an insurance company) results in other non-Thai shareholders (who have not been granted the permission to hold an insurance company) holding 20 percent or more of the total shares, the insurance company must request the permission from the Minister of Finance. (3) A non-Thai shareholder who has already been granted a permission and entities under the same group of such non-Thai shareholder will not be permitted to operate an insurance business in Thailand, either through a branch of a foreign insurer or by holding shares, in other licensed insurance companies in Thailand. This means that upon the permission being granted, the non-Thai shareholder will be subject to a single presence policy. However, such person will still be permitted to invest in a mutual fund or other forms of business similar to a mutual fund; provided that such investment is not for the purpose of avoiding the single presence rule. (4) The insurance company will be able to distribute dividends only when the insurance company has fully implemented the business plan submitted to the Ministry of Finance, in particular, plans related to the transfer of technology and expertise, human resources and capital fund management. 19 Baker McKenzie 4. Implications relevant to EBT or amalgamation If an insurance company that has been granted the permission undergoes an entire business transfer (EBT) or an amalgamation, and the contemplated transaction results in the target insurance company having a foreign shareholding ratio of more than 49 percent, or a foreign directorship ratio of more than half, such target insurance company will be deemed to have been granted a permission under the MOF’s Notifications, for a temporary period, for the purpose of the EBT or amalgamation. Notification re: Criteria and Methods of Issuing Insurance Policies, Offering Insurance Products, and Paying Insurance Compensation Through Electronic means for both life and non-life insurance businesses, B.E. 2560 (2017) On 27 February 2017, the OIC announced the notification re: criteria and methods of issuing insurance policies, offering insurance products, and paying insurance compensation through electronic means for both life and non-life insurance businesses, B.E. 2560, which became effective on 25 August 2017. The notifications aim to regulate insurance activities that are undertaken via electronic channels. The notifications stipulate that all activities conducted through electronic means must be carried out in accordance with the OIC’s regulations, including regulations on market conduct and advertising, and must comply with the Electronic Transactions Act, B.E. 2544 (2001), in terms of the level of security procedures and the requirements for a reliable electronic signature under the said act. 1. Offering of insurance products via electronic channel The offering of insurance products via electronic channel may only be conducted by the insurer, broker company and/or bank (with the insurer’s consent in case of broker company/bank). If the sale is conducted by a licensed agent, it must use the electronic means approved by the OIC and also clearly disclose relevant necessary information, in particular, the benefit payment conditions and premium. However, the notifications will not apply to cases where individual staff of an insurance company, individually-licensed agents or individually-licensed brokers, use electronic means solely to deliver sales presentations explaining product features to customers. 2. Issuing insurance policies via electronic channel The insurer is required to issue the insurance policy contract and documents summarizing the coverage and exclusions to the insured. The insurer must keep, and allow policyholders to access, the insurance policy/insurance certificate and related documents for the duration of the statutory limitation period, or until the conclusion of the case, should there be any claims under the policy. 3. Payment of insurance compensation via electronic channel The insurer must provide proper information on the method of claiming a compensation payment, and there must be a process for the insured/beneficiary to identify themselves via electronic channel before any compensation is paid. All payments of compensation must only be made to the insured or their beneficiary’s account (as the case may be). 20 Insurance Outlook 4. Use of electronic means for offering an insurance policy for sale. The use of electronic means for offering an insurance policy for sale is also regulated by the notifications. It must be made in accordance with the secured procedures at the level prescribed by the law on electronic transactions. In addition, the notifications also stipulate that insurers, brokers and banks must have in place procedures to manage personal data privacy, arrange for independent audits to assess the information technology systems and must register with the OIC before implementing the regulated electronic activities. Any outsourcing of services to third parties requires the approval of the OIC, so as to ensure that the service provider complies with these requirements under the notifications. Registrar Order No. 8/2560 re: premium for installation of CCTV in motor vehicles The OIC recently announced the Registrar Order No. 8/2560 re: premium for installation of CCTV in motor vehicles, which came into effect on 3 March 2017. This order requires insurers to offer a 5 to 10 percent discount in the net premium to customers for all types of voluntary motor insurance if they have installed a CCTV (Closed-Circuit Television). To be entitled to the discount, customers simply have to show evidence of having installed a CCTV in their vehicle when obtaining an insurance policy, and maintain the CCTV installed in their vehicle throughout the coverage period. Registrar Order No. 11/2560 re: forms and content of insurance policy and attachment to the insurance policy Currently, the insurer will not be liable if the blood alcohol content of the driver while driving is 150 mg percent or more. In an effort to discourage driving under the influence, the OIC recently announced the Registrar Order No. 11/2560 re: forms and content of insurance policy and attachment to the insurance policy, which reduces the threshold level of blood alcohol content to 50 mg percent, to be in line with the law on land traffic. Therefore, the insurer will not be liable if an insured has a blood alcohol content of more than 50 mg percent while driving. The registrar order became effective on 1 June 2017. The Draft Amendments to the Life Insurance Act and the Non-Life Insurance Act On 13 December 2016, the Cabinet approved in principle the draft amendments to the current Life and Non-Life Insurance Acts proposed by the Ministry of Finance as opposed to overhauling the whole Insurance Acts. The drafts, which are currently under the consideration of the Council of State, will be proposed to the National Legislative Assembly for approval and are expected to become effective soon. The amendments are aiming to enhance the protection of consumer’s rights and conforming with the changing situation and the increased use of technology in the insurance business. Particularly, the drafts consist of four principles as follows. 1. Addition of the provisions prescribing insurance fraud as an offense A person who in bad faith deceives any other person to enter into an insurance agreement, claim any benefits under an insurance policy, or give any benefit to induce compensation or payment under an insurance policy, shall be liable under this legislation. 21 Baker McKenzie 2. Improvement of the supervision of performance of duty and change of punitive measures for insurance agents and brokers to be more appropriate The agents and brokers must comply with stricter provisions concerning offering insurance products, disclosure of information, and receipt, retention and remittance of insurance premium. In this regard, the OIC is empowered to promulgate sub-ordinated regulations relevant to the amended provisions in order to ensure that the public receives correct information and for the purpose of supervising the performance of duties by life insurance agents and brokers. 3. Addition of a provision with respect to a loss adjuster Since the provisions in relation to loss adjuster are not suitable to the business practicality, the key proposed amendment is for the qualifications of a legal entity and a natural person who intends to obtain a loss adjuster license to be more appropriate. 4. Addition of the provision related to electronic transactions Any electronically recorded transactions under the Insurance Acts shall be in accordance with the laws on electronic transactions and any other applicable laws, including rules specified by the OIC. Apart from the above, the current versions of the Insurance Acts lack substantial provisions on strengthening of insurance companies stability and security and appropriate formality on the transfer and amalgamation of business. The OIC is preparing the separated drafts to amend such provisions to be more appropriate and consistent with international standards. Draft Marine Insurance Act After several initiatives to legislate a marine insurance law, the Thai insurance industry is looking forward to the enactment of the new Marine Insurance Act. The draft law now awaits approval from the Ministry of Finance. Although marine insurance is an important element in the international trade system, there are no specific laws governing the marine insurance industry under Thailand’s current legal regime. Section 868 of the Civil and Commercial code prescribes that the contracts of marine insurance shall be governed by the provisions of the maritime law, which means the marine insurance agreement shall be subject to a specific law that currently does not exist in Thailand. In the past, if there were any disputes regarding maritime insurance matters, the court would look to the UK marine insurance law for general principles of law. Even though the court judgment is in accordance with the international guideline, the UK marine insurance law is not a law that the court can interpret and apply as with general principles of law. In addition, since the marine insurance law is a foreign law, there are some parts that are not suitable for Thailand. It is now time for Thailand to have its own marine insurance law and this act will be the first consolidated marine insurance law in Thailand. The new act is based on Marine Insurance Act 1906 and Insurance Act 2015 of the UK, which are the two principal laws used internationally. The draft act consists of 15 chapters and 134 sections. The essential issues include the rights and obligations between the insured and the insurer under the marine insurance agreement. The act also specifies general rules, such as utmost good faith, interest, and principle of subrogation. In addition, the draft act also classifies and categorizes different types of marine 22 Insurance Outlook insurance agreements, and provides for rules on calculating compensation. The enactment of this act will solve the problem that the courts have regarding the use of the UK law in judicial proceedings. According to the OIC, a public hearing for the draft Marine Insurance Act has been held, and it received unanimous support from the public during the hearing. Once promulgated, the Marine Insurance Act will be an essential part in boosting the trade system, transportation, investment and education, resulting in economic growth. In addition, the new Marine Insurance Act would increase the competitiveness of Thai insurers in CLMV countries. The Personal Data Protection Bill The Personal Data Protection Bill (the “PDPB”) has been considered by the Cabinet and the Council of State, but has been passed back to be reconsidered by the Ministry of Digital Economy and Society (“DE Ministry”), which is a recently established ministry replacing the Ministry of Information and Technology. Currently, there is no official timeframe for when the PDPB will be passed. If the PDPB is passed, it will be the first consolidated law relating to the protection of personal data in Thailand. Notable aspects of the PDPB include the requirement of consent from the data owner for the collection of personal data. Under the PDPB, personal data cannot be collected, used, disclosed, or transferred unless informed written consent from the data owner is obtained. The request for consent must not be deception or cause a misunderstanding to the data owner. In this respect, the Data Privacy Committee, the main regulatory body to be established under the PDPB, may prescribe the form and content for which the data owner’s consent can be obtained. In addition to the requirement of consent, the PDPB imposes obligations on the data controller to implement appropriate security measures to prevent the loss, improper access, use, modification, or disclosure of personal data without authorization or in a wrongful manner. Data controllers must also observe the duty to destroy personal data after the expiration of the retention period, or personal data that is not relevant or in excess of what is necessary pursuant to the objectives of the collection of such personal data, or in the case where the data owner revokes consent, unless it is retained for evidence or examination purpose. In the event of a data breach, the PDPB stipulates that the data controllers must notify data owners of such breach, and in certain circumstances, must notify the Data Privacy Committee of the breach and the remedial measures. It is important to note that details of the PDPB may be subject to further changes and legislative process. 23 Baker McKenzie The first class action has arrived: Implications of class action on the insurance industry. One and a half year after the Act to Amend the Civil Procedure Code (Number 26) B.E. 2558 (the “Class Action Act”) took effect, the first class action lawsuit in Thailand was initiated by consumers against an automotive company. Although the class has not yet been certified, this case serves as a clear signal that the class action is no longer an abstract idea, but a real feature of the legal landscape. What is a class action? A class action is a proceeding which enables a named plaintiff to file a lawsuit on behalf of a large group of persons, known as a “class”, with the judgment from the suit binding all class members. In US class action practice, entrepreneurial lawyers specialize in identifying promising class action opportunities, for example a widely sold defective product causing distinct damages to a group of consumers. Once the lawyer identifies his target, the lawyer will file a complaint against the manufacturer of the defective product and ask the Court to certify the class for all consumers of the product in the U.S. (which, for example, can be upwards of 2 million people). The Court will examine whether these customers share the same factual pattern and legal issue. If so, the Court will certify the class and the stakes of the ensuing litigation will be high as the judgment will be binding upon all members of the class who decide not to opt out of the class. If a settlement between the class and the manufacturer can be made or if a judgment is rendered in favor of the class, the lawyer will receive a lawyer’s fee from the awarded compensation. Sometimes, the lawyer’s fee can be up to 30% of the value of the damages awarded. If the awarded compensation to all 2 million customers is $100 million, the lawyer stands to receive $30 million as a lawyer’s fee. As such, it is a lucrative business for entrepreneurial lawyers. The rationale behind class actions is that it will provide fairer and more efficient litigation proceedings to injured persons as the case will be tried at one time, whereas if each consumer had to lodge a separate case, the process would be inefficient and the consumer with a relatively small individual claim would not have the resources to pursue justice. The use of class action saves cost and expenses to all parties including the Court. It is also believed that allowing an entrepreneurial lawyer to enjoy a lucrative lawyer’s fee will bring a benefit to society as a whole, because the entrepreneurial lawyer acts as a “watch dog of a society” to identify wrongdoers. Moreover, business operators will be more careful in operating their businesses as the stake of a potential adverse award and the likelihood of being the subject of a watch dog list is high. Claim / Litigation UPDATE 24 Insurance Outlook Implications for the Insurance Industry What this means to insurers is that the availability of class action lawsuits can potentially increase exposure to insurers for both the various types of insurance products sold to their customers and the coverage of their insured’s liability to third parties, and the amount of compensation paid to their insured or third parties. A class action lawsuit from insurers’ endcustomers may alert other customers to either join the class or initiate their own claim. Not only do insurers sell product liability insurance, they also sell other products such as life insurance, health insurance, general public liability insurance, industrial all risks insurance, to name just a few types of coverage. Insurers are potentially exposed to a high risk of class action lawsuits, as all of these products contain the same policy wordings. Below, we will analyze the anticipated issues related to practical implications of the class action regime. We have divided our analysis into two parts. The first part looks at insurers as defendants in class action claims, and the second part examines situations in which the insured claim from insurers in relation to class action claims. Part 1: When insurers are defendants In the U.S., insurance companies are quite the targets for entrepreneurial class lawyers. The insurance companies of course have sufficient assets to cover the judgments and potential judgments. They sell policies containing the same wordings to insured. As such, if the class lawyers can find malpractice in handling claim process or misrepresentation in the selling or marketing process, class action lawsuits will be easily initiated because the insureds can be considered as a “class” who share the same factual and legal background. As the insurance industry has a high risk of becoming defendants in class action lawsuits, insurers must know their rights and know what to do once they receive a subpoena to attend court for a class certification hearing. 1. Insurers should first consider whether a request for class certification satisfies the legal requirements. Under the Civil Procedure Rule, the court will consider the following factors at the stage of class certification: a. whether the request for class action certification clearly sets forth the nature of the claims and the basis of the plaintiff’s claims and basis of the claims of the class members who have the same characteristics as the plaintiff, and if the plaintiff claims monetary payment, whether the principal and calculation methods for the payment are provided; b. whether the plaintiff demonstrates clear, common and typical qualities of the class members; c. whether there are enough class members to cause complications and difficulties if the action were to be taken as an ordinary civil case; d. whether a class action would be fairer and more efficient than an ordinary case; and e. whether the plaintiff demonstrates that they are a class member with the qualifications, interests, and rights of a class member, and whether the plaintiff and the class attorney can sufficiently protect the class members’ rights. 1 1 Sections 222/10 and 222/12 of the Civil Procedure Code. 25 Baker McKenzie 2. Insurers should consider their right to object to the class certification and whether witnesses or expert witnesses should testify at the hearing for class certification. Under the Civil Procedure Code, once a defendant receives a request for class certification and the complaint, it is entitled to submit an objection to the class certification within 15 days from the date of receipt of the motion and the complaint.2 The defendant is also entitled to present witnesses or expert witnesses to testify at the hearing for class certification, but the documentary evidence and names of witnesses must be included in an evidence list and submitted to the court seven days prior the hearing.3 The law only allows the defendant a short time to submit an objection to class certification. Therefore, insurers should quickly respond. However, it remains to be seen whether the courts will strictly enforce this time frame or provide the defendants time extensions. As there is often much scattered information which takes time to compile, we recommend that insurers should ensure that their information system is well-maintained, easy to access, and can be easily used to identify types of customers. A good information system will significantly reduce preparation time. 3. Insurers should be aware of their right to appeal the class certification order. The parties are entitled to submit an appeal to the court’s order with the Court of Appeal within seven days from the date of delivery of the order.4 The hearing will be stayed pending the appeal process. The decision of the Court of Appeal will be final. Finally, the insurer should carefully review the terms, conditions, and exclusions under the policy to see if the coverage under the relevant policy is triggered. Part 2: Insurance policies and class action The insurance companies may be involved in class action lawsuits in the event their policyholders are named as a defendant in the class action. Typically, these cases involve liability insurance, (malpractice liability, product liability, public liability, etc.), and in these cases, the insurer will pay for the loss if the insured is found liable to the plaintiffs and class members. As we start to see the class action regime expands in Thailand, more companies will potentially be brought to court, which may lead to millions of Baht being spent for damages and litigation costs. Even if insurers are not brought into the court proceedings, they may not be off the hook. For example, a liability policy would generally require the insurer to pay the insured separate “defense costs” incurred by the insured in their defense. However, given that the class action is a new risk to all businesses and the current insurance products available in the market do not take into account this new risk, this may be a business opportunity for insurance companies to develop their policies to cover this risk. In other countries, there is an ongoing debate on the limitations of insurance coverage for class action lawsuits, and whether a class action lawsuit amounts to a single “occurrence” under a liability insurance policy, or whether each claim of a prospective class member constitutes a separate and distinct occurrence. This is important because the amount of indemnity paid to third parties would be subject to the time of “occurrence” under the policy. 2 Clause 10 of the President of the Supreme Court’s Directive re: Class Action. 3 Clause 13 of the President of the Supreme Court’s Directive re: Class Action. 4 Clause 222/12, paragraph three of the Civil Procedure Code. 26 Insurance Outlook If one class action lawsuit is considered “one” occurrence, the amount of compensation to be paid by the insurer would be limited. On the other hand, if each claim of an individual class member constitutes one separate and single occurrence, then the exposure of the insurers would increase accordingly. As the Thai court has not addressed this issue, we have considered the approaches used in the US. Most US courts determine the number of occurrences by examining the cause of the damages. In other words, they look at the number of events that caused the injuries which subsequently gave rise to the insured’s liability. For example, if an automobile company has been sued for product liability due to a technical defect in cars sold to consumers, a court adopting this viewpoint would determine the occurrence to be the technical defect in the cars, which constitutes a single occurrence. However, there is a minority view, based on how many individual claims or injuries resulted from the event, whereby the court looks at the issue from the perspective of the injured party. Under this view, in the same scenario, the court would determine the occurrences based on the number of individuals injured as a result of the technical defects, which would be a much larger number. The former theory would be preferable for insurers, while the insured would prefer to apply the latter. However, which theory would prevail depends on the Thai court’s discretion, and how the policy is drafted. Some insurance policies provide legal expense coverage for the insured. This raises another issue, as lawyer’s fees for a class lawyer in a class action lawsuit can be as high as 30 percent on top of the judgment awarded to the class members. This is designed to maximize the interests of the class members, and to ensure that they will receive all of damages awarded to them. However, this leads to the question of whether the lawyer’s fee, legal expenses, or losses arising from a class action lawsuit fall under the insurance or reinsurance policy. The answer is difficult to anticipate, as it will depend on the Thai court, however, it is noted this additional fee is not levied in US courts. Conclusion It can be expected that the incidence of class action lawsuits will increase, leading to growth of mass litigation, higher costs of doing business, and greater risks of liability. This is a business opportunity for insurers, but at the same time, insurers are more vulnerable to consumer actions. We advise the insurance industry to carefully study the implications of the class action regime and prepare for its effects. 27 Baker McKenzie For many years, our Insurance Practice Group has been a key participant in the Thai insurance industry and has acted as legal advisor to organizations in various parts of the insurance industry network, including domestic insurance companies, international investors, and insurance brokers. Our experience in this field enables us to play an active role in assisting international investors from more mature insurance and reinsurance markets, who are eager to participate in an existing domestic operation or enter into a joint venture with an existing local insurance entity. Our insurance law specialists advise insurance clients of all types, at all stages of operation – from establishing their operations in Thailand (often through mergers, acquisitions, or joint venture agreements) to regulatory compliance, insurance policy drafting, and the settlement of claims. We have also given advice to a number of clients on the procedures for corporate and financial restructuring, to enable companies to legally achieve their business objectives, in light of the strict regulatory regime. The broad range of insurance-related matters we handle includes: - Thailand regulatory issues; - policy issues (life and casualty insurance); - mergers, acquisitions, and joint ventures; - development of new insurance and investment-linked products; - insurance-related claims and subrogation matters; - investments by insurance funds and asset management; - bancassurance; - tax aspects of insurance, investment, and corporate restructuring; and - litigation claims. As part of Baker McKenzie’s Global Insurance Practice Group, we are also able to draw on the experience of our offices in leading international insurance markets, such as those in New York, Chicago, London, and throughout Europe. We are able to provide timely and cost-efficient multi-jurisdictional reviews of relevant insurance, tax, corporate and regulatory issues facing international underwriters in the various markets in which they operate. Statement CAPABILITY 28 Insurance Outlook Insurance - Regulatory, M&A Pornapa Thaicharoen Tel.: +66 (0) 2636 2000 ext. 4556 email@example.com Jakkarin Bantathong Tel.: +66 (0) 2636 2000 ext. 4667 firstname.lastname@example.org Sorachon Boonsong Tel.: +66 (0) 2636 2000 ext. 4100 email@example.com Sivapong Viriyabusaya Tel. : +66 (0) 2636 2000 Ext. 4101 firstname.lastname@example.org Preeda Meksrisuwan Tel.: +66 (0) 2636 2000 ext. 4060 email@example.com Ampika Kumar Tel.: +66 (0) 2636 2000 ext. 4207 firstname.lastname@example.org Sumet Orsirivikorn Tel.: +66 (0) 2636 2000 ext. 4204 email@example.com Dispute Resolution - Insurance Claims Kanit Vallayapet Tel.: +66 (0) 2636 2000 ext. 3112 firstname.lastname@example.org Chirachai Okanurak Tel: +66 (0) 2636 2000 Ext. 3223 email@example.com Wynn Pakdeejit Tel: +66 (0) 2636 2000 Ext. 3120 firstname.lastname@example.org Manu Rakwattanakul Tel: +66 (0) 2636 2000 Ext. 3102 email@example.com Piya Krootdaecha Tel: +66 (0) 2636 2000 Ext 3807 firstname.lastname@example.org Pisut Attakamol Tel: +66 (0) 2636 2000 Ext. 3131 email@example.com Chaiporn Supvoranid Tel: +66 (0) 2636 2000 Ext. 3068 firstname.lastname@example.org Suksawat Watewai Tel: +66 (0) 2636 2000 Ext. 3112 email@example.com Paralee Techajongjintana Tel: +66 (0) 2636 2000 Ext. 3101 firstname.lastname@example.org Timothy Breier Tel: +66 (0) 2636 2000 Ext. 3223 email@example.com ©2017 Baker & McKenzie. 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