Guru Speak

Under this product class, the policy values, known as cash value, are calculated from actu¬arial formulas that implicitly reflect expected investment return, cost of expenses and insurance coverage.

Policyholders are only informed about the premium they have to pay and the policy value they will get.

The insurers are respon¬sible for the investment in order to achieve the guaranteed return. Some products provide additional nonguaranteed bene¬fits in the form of policyholder dividend/bonus, which are determined at an insurer's dis¬cretion and declared from time to time.

Advanced insurance markets such as the United States, the United Kingdom and Australia have already moved to the next generation, or socalled "nontraditional" products. Examples covered in this article are uni¬versal life and unitlinked prod¬ucts.

Let's talk about universal life first. Universal life is similar to the abovementioned traditional products in providing insurance coverage, but has a few distinc¬tive innovations. One of these is making the policy value more transparent. The policy will com¬pletely inform customers of expense charges, insurance charges and the investment return credited to the policy value. Each year, the premium paid by policyholders will be deducted by expense and insurance charges and the rest will be set up as their poli¬cyvalue account for earning an investment return. So, poli¬cyholders can trace how their policy value comes from the premium pay¬ment.

The investment of the policy value will rely on the insurer's investment performance and typically be declared to the poli¬cyholder in the form of crediting interest to the policyvalue account. Instead of fixing the guaranteed return, the credit¬ing rates are usu¬ally subject to a minimum guar¬antee and allow customers a higher return when the insurer makes better yields.

As the product concept is com¬pletely new to customers and sales staff in Thailand, universal life's market share is still in the introductory stage of growth.

Let's now move on to unitlinked insurance, also known as invest¬mentlinked insurance, (or vari¬able universal life in the US). The main features of the prod¬ucts - not least transparency - are similar to those of universal life, except that the investment strategy is decided according to the individual policyholder's preference, rather than by the insurer's investment unit. That means policyholders can choose, among the provided alternatives, the kind of invest¬ment units in which they prefer to have their money placed.

Typically, the offered choices are equity funds (various funds with different degrees of risk/return combination available for selec¬tion) and moneymarket funds (more stable, but low return).

The insurers will bring the poli¬cyvalue account to purchase the desired funds for them. So, policyholders are in control of their own policy value while insurers provide for insurance coverage and access to the financial market.

The regulatory framework for unitlinked products is going to be released here soon. The first unitlinked product in Thailand is, therefore, not too far away.

There is always the question of whether the Thai market is sophisticated enough to accept the concept of these new prod¬ucts. No one can really give an answer yet, but laying down the first steps unarguably brings beneficial development to enhance customers' value per¬ception of policy purchase and the expansion of the product range for market coverage.