Insurers will have no choice but to pass the extra cost to policyholders if the draft amendments to the Insurance Act and the Independent Organisation Act, which would charge them 0.5 per cent annually on premiums, become effective.

The Cabinet has already passed the resolutions and the drafts are pending legal interpretation from the Council of State.

One contentious article in the draft amendment to the Insurance Act is about setting up a policyholder protection fund, to which all insurers would have to contribute. The fund would be used when any of the insurers fails to pay claims.

If the law becomes effective, insurers are likely to push the burden onto policyholders by increasing premiums to cover the amount that the insurers have to contribute to the fund.

The draft of the Independent Organisation Act has been widely criticised as the contributions and the fee changes are unexpectedly high. Consequently, premium rates would have to be increased accordingly.

If the Insurance Department becomes an independent regulator, it has to cover its own expenses. The draft says that the amount of contribution from 24 life insurers and 74 non-life insurers must not exceed 0.5 per cent. However, it is unclear whether the rate would be calculated from total premiums or the first-year premiums the insurers obtain each year.

Speaking at a press conference yesterday, Thai Life Assurance Association (TLAA) executives expressed their concern over premium rates being raised.

Former Insurance Department deputy director-general Bussara Ungpakorn, who has now joined the TLAA as director, said that less than half of all life insurers were able to generate a profit.

She added that the Insurance Department had about Bt300 million in expenses each year.

"Life insurance companies receive around Bt173 billion in premiums annually, while non-life insurers obtain around half of what the life insurance industry generates. To contribute to an independent organisation at a maximum of 0.5 per cent, the life insurers would have to contribute around Bt900 million, while the non-life insurers contribute Bt500 million. Bt1.4 billion is more than the independent agency would need," said Bussara.

Apirak Thaipatanagul former president of TLAA and director and chief executive officer of Thai Life Insurance, said that if the contribution were only 0.1 per cent, the industry would still be competitive. However, if the figure is 0.5 per cent, the rate is too high.

"Now, all fees the Insurance Department receives are transferred to the Finance Ministry. If the department becomes independent, the law says that all fees will go directly to the department, so it will have more income," said Apirak.

According to the drafts, all fees are increased in a range from 100 to 400 per cent.

Separately, TLAA president Sara Lamsam said the TLAA had recently submitted an explanation as to why an increase in tax-deduction privileges from Bt50,000 to Bt300,000 is needed.

In the submission, the TLAA suggested the Finance Ministry consider insurance bonds to support the government's infrastructure projects.

"Around 90 per cent of the Bt600 billion in the insurance industry is investment assets. We are a long-term business. We might match any of the government's long-term projects, as the cost of funds is low. However, we'll have to work on details if the Finance Ministry is really interested in this type of bond," said Sara.

Piyarat Setthasiriphaiboon

The Nation