This country-specific Q&A provides an overview to insurance and reinsurance laws and regulations that may occur in Thailand.
This Q&A is part of the global guide to Insurance & Reinsurance (3rd edition). For a full list of jurisdictional Q&As visit http://www.inhouselawyer.co.uk/practice-areas/insurance-and-reinsurance-3rd-edition
How is the writing of insurance contracts regulated in your jurisdiction?
The writing of insurance contracts is regulated by the Civil and Commercial Code, the Life Insurance Act 1992 (“LIA”), the Non-Life Insurance Act 1992 (“NLIA”), and subsidiary laws issued thereunder. In addition, certain types of insurance are regulated by specific laws; namely compulsory motor insurance under the Motor Accident Victims Protection Act 1992, and social security under the Social Security Act 1990.
The Office of Insurance Commission (“OIC”), under the supervision of the Ministry of Finance (“MOF”), is the main authority regulating insurance and reinsurance companies in Thailand.
Are types of insurers regulated differently (i.e. life companies, reinsurers?)
In general, life, non-life insurance and reinsurance companies are regulated in the same way, all being subject to the regulatory requirements and controls by the OIC pursuant to the LIA and NLIA.
An insurance or reinsurance company can only be established as a public limited company or a branch of a foreign insurance company.
To set up an insurance or reinsurance company, promoters of the new company are required to apply for a licence to operate insurance or reinsurance business with the MOF. If the application is approved, the promoters must incorporate a public limited company. The company must place a security deposit and maintain a capital fund of the amount required under relevant regulations within six months from the registration of the public limited company. The Minister of the MOF will issue the insurance licence upon completion of the said requirements.
In setting up a branch of a foreign insurance company, the foreign insurance company would be entitled to apply for a licence to operate insurance or reinsurance business, with the MOF, only if it has held an operating licence (overseas) for not less than three years. Its branch would be permitted to operate insurance or reinsurance business in Thailand within the scope of its existing overseas licence. If the application is approved, the branch of the foreign insurance company must place a security deposit and maintain a capital fund of the amount required under relevant regulations. The Minister of the MOF will issue the insurance licence upon completion of the said requirements.
Are insurance brokers and other types of market intermediary subject to regulation?
Insurance agents and brokers are subject to regulatory requirements under the LIA and NLIA. Insurance agents are typically persons delegated by insurance companies to solicit or procure insureds/policyholders to enter into insurance contracts with the insurance companies. Insurance brokers are persons who indicate the opportunities or arrange for insureds/policyholders to enter into insurance contracts with insurance companies, in return for a commission. Insurance agents must be individuals only but insurance brokers may either be individuals or juristic persons.
Is authorisation or a licence required and if so how long does it take on average to obtain such permission?
Licences for insurance agents and brokers are required to be obtained from the OIC.
An insurance broker company may be established as a private limited company or public limited company, or a financial institution. A company must be qualified under the LIA and/or the NLIA, for example, having authorised persons and employees holding (individual) insurance broker licences of not less than the minimum number prescribed by law. Authorised persons of an insurance broker company are required to pass an examination arranged by the OIC.
An individual insurance agent and broker must be qualified under the LIA and/or the NLIA, for example, an insurance agent must not be an insurance broker and vice versa. An insurance agent and broker must also pass an examination for each type of licence, arranged by the OIC.
The timeline to obtain the licences for an insurance agent and broker cannot be estimated as it generally depends on the schedules of relevant examinations as well as the number of candidates applying for each examination.
Are there restrictions or controls over who owns or controls insurers (including restrictions on foreign ownership)?
An insurance or reinsurance company must have Thai nationals holding at least 75 percent of the total number of its voting shares that have been sold, and not less than three-fourths of the total number of its directors must be Thai nationals.
Where the OIC deems it appropriate, the OIC may permit non-Thai nationals to hold up to 49 percent of the total number of voting shares that have been sold, and more than one quarter of its directors (but less than half) to be non-Thai nationals.
In the event that the insurance or reinsurance company’s standing or operations are of a condition that might cause damage to the insured or the public, or for the purposes of strengthening the stability of any company or the stability of the life insurance business, the Minister of the MOF (upon the recommendation of the OIC), is empowered to grant a waiver to permit the company to have shareholders or directors other than as specified in the second paragraph.
Is it possible to insure risks in your jurisdiction without a licence or authorisation? (i.e. on a non-admitted basis)?
The LIA and NLIA prohibit non-authorized insurers from insuring risks situated in Thailand.
Foreign insurers are not entitled to write business directly with an insured person/organisation. If a foreign insurance company wishes to write insurance directly, it would be required to establish a branch to conduct insurance business in Thailand. However, the foreign insurance company may write reinsurance of a domestic insurer at the initiation or request of the domestic insurers, either directly or through a licenced reinsurance broker or international reinsurance broker. In other words, a reinsurance licence would not be required if there is no initiation or offer to sell reinsurance products, or advertisements of such products made by foreign reinsurance companies directly to insurers in Thailand.
What penalty is available for those who operate in your jurisdiction without appropriate permission?
It is a criminal offence to undertake an insurance business in Thailand without authorisation. Punishment includes imprisonment of two to five years, or a fine between THB 200,000 to THB 500,000, or both, and an additional fine not exceeding THB 20,000 per day for every consecutive day during which the offence continues.
How rigorous is the supervisory and enforcement environment?
The OIC has broad powers and authority to supervise insurance companies and businesses, as well as enforce compliance with regulatory requirements. For example, the OIC is empowered to announce regulations on several matters with which insurance companies must comply, such as matters regarding the collection of premiums, and wage or commission rates for insurance agents or brokers. With respect to the inspection, investigation and enforcement, the OIC is authorised to, among others, enter into the office of insurance companies, demand statements or documents to be provided to it, and order a temporary seizure of property of an offender. The approach of the OIC would be dependent on the nature and severity of the issued concerned.
In the past decade, there were several cases where the OIC demanded the revocation of a licence due to the licence holders’ non-compliance with requirements under the law. The supervision and enforcement environment of insurance companies by the OIC in Thailand has become increasingly rigorous and tough. Nonetheless, the OIC is generally open for corrective measures before serious sanctions, such as the revocation of a licence, are imposed.
How is the solvency of insurers (and reinsurers where relevant) supervised?
The solvency of insurance and reinsurance companies are supervised by the OIC through several requirements and controls under the LIA and NLIA. Major requirements and controls include:
(a) Requirement to maintain capital funds throughout the period of undertaking the insurance business, in proportion to assets, liabilities, obligations, or risks, at the rate announced by the OIC (which may be determined based on each or all sizes or categories of assets, liabilities, obligations, or risks). These capital funds must not be used to incur any obligations.
(b) Requirement to maintain liquid assets in proportion to assets, liabilities, obligations, or reserves not less than the rate announced by the OIC.
(c) Requirement to submit to the OIC financial statements on a quarterly and annual basis, as well as annual reports showing the operation results of the companies.
(d) Requirement to place with the OIC a security deposit, as a collateral, of the amount required for each type of insurance.
(e) Requirement to allocate premiums to an insurance reserve at the rate announced by the OIC. The OIC is also empowered to require the companies to place certain amounts of these reserves with the OIC as it deems appropriate.
Security deposits and insurance reserves placed with the OIC under paragraphs (d) and (e) are not subject to the execution of judgment so long as the insurance company is not yet dissolved, (including the time where the insurance company remains in existence as necessary for its liquidation). In the event where the insurance company is dissolved, creditors who are entitled to receive payment of insurance debts (such as insureds and beneficiaries) would have a preferential right over the said security deposits and insurance reserves placed with the OIC under paragraphs (d) and (e), as well as the right to receive payment of debt out of these assets before other preferential creditors.
What are the minimum capital requirements?
A life (re)insurance company and non-life (re)insurance company must have a registered capital of at least THB 500 Million and THB 300 Million (all fully paid-up), respectively. A reduction of registered capital is prohibited unless prior written permission of the OIC is obtained.
Is there a policyholder protection scheme in your jurisdiction?
Insurance companies are obliged to place, with the OIC, security deposits and insurance reserves as discussed in question 9. This is for the purpose of protecting policyholders, in particular, to ensure that the policyholders are entitled to receive payment of insurance debts from the said security deposits and insurance reserves before other creditors in the event where the insurance company is liquidated and dissolved.
In addition, any insurance company wishing to discontinue its business must obtain prior approval from the OIC. To protect the interests of policyholders, beneficiaries or other interested persons, the OIC may prescribe conditions or procedures for the insurance company to comply with before granting its approval; for instance, a procedure for managing or transferring the obligations under policies, and procedure for notifying insureds, beneficiaries and interested persons to exercise their rights under the law.
Insurance companies are also prohibited, under the LIA and NLIA, from delaying payment of any sum or the return of premiums to a policyholder or a beneficiary without an appropriate reason, or to make such payment or return in bad faith. Any non-compliance to this constitutes a criminal offence and the insurance company would be subject to a fine throughout the period of such non-compliance.
How are groups supervised if at all?
There are no specific group control or supervision provisions under the law. Each insurance company is independently and separately supervised by the OIC and subject to the regulatory requirements applicable to its own operations and activities (for example, the requirements to maintain capital funds and liquid assets as discussed in question 11). Nonetheless, an insurance company which is a branch office of a foreign insurance company is required to submit an annual report of the foreign company to the OIC. The OIC is also empowered to request the submission of any reports, documents, or clarification in relation to the group which are deemed to relate to the operation of insurance business by the Thai company.
Do senior managers have to meet fit and proper requirements and/or be approved?
A director, manager, authorised person or consultant of an insurance company must be qualified under the LIA and NLIA. For example, they must hold a bachelor's degree or higher qualification or have work experience in relation to the insurance business, and must not be a director, manager, or authorised person of another company licenced to undertake the same life or non-life insurance business (as the case may be).
Are there restrictions on outsourcing parts of the business?
It is prohibited under the LIA and NLIA for insurance and reinsurance companies to assign or outsource the writing of insurance and the payment of claims under their insurance policies. Assignment and outsourcing of other parts of their business (for example, IT outsourcing) are not prohibited and not subject to specific restrictions.
How are sales of insurance supervised or controlled?
The sales of insurance are regulated under the LIA and NLIA in several aspects including, among others, the form and contents of policies, rates of insurance premiums, advertisements, and sales of insurance through intermediaries.
The forms and contents of policies as well as the rates of insurance premiums must be approved by the OIC in advance. Any policies or premium rates previously approved by the OIC may be amended or repealed by the OIC at its discretion or at the request of insurance companies.
The texts of or pictures in an advertisement are deemed to be a part of the insurance policy. If any text or picture contains a meaning which conflicts with insurance policies, it would be interpreted in a way that is more favourable to the insured or beneficiaries.
Where the sales of insurance are conducted by insurance agents, the agents must not give any false information or conceal any fact which ought to be clarified, and must also comply with other requirements announced by the OIC. Insurance companies will be jointly liable with their insurance agents for any damages caused in relation to such sales and the agent’s conduct.
Are consumer policies subject to restrictions? If so briefly describe the range of protections offered to consumer policyholders
Insurance policies and related documents issued by insurance companies to an insured must be in the form and with content approved by the OIC, as discussed in question 15.
If an insurance company issues a policy which is in a different form or with content that is different from that which was approved, the insured or beneficiary would have the option of holding the insurance company liable for the performance of obligations according to the policy issued to him/her, or according to the policy approved by the OIC. If an insurance company issues a policy using the form or content that is not approved by the OIC, the insured (but not the beneficiary) would have the option of holding the insurance company liable under that insurance policy, or terminating the insurance contract and claiming a return of the premiums in full.
Regardless of the option elected by the insured or the beneficiary in the above cases, the insurance company would be liable for non-compliance under the LIA or NLIA.
Are the courts adept at handling complex commercial claims?
Yes, the Thai Court is experienced in dealing with complex commercial claims.
Is alternative dispute resolution well established in your jurisdictions?
Thailand is a signatory to the New York Convention and alternative dispute resolution (including mediation and arbitration) is well-established in Thailand. With respect to insurance related issues, the use of the OIC’s arbitration system has been established since 1998. It is also worth noting that Thai insurance law requires all insurance policies (except marine hull and marine cargo policies) to have a provision entitling the insured to submit its claim to arbitration before the OIC. The arbitration proceedings would be conducted by an officer of the OIC and the parties are entitled to enforce or challenge the award under the provisions of the Thai Arbitration Act.
What are the primary challenges to new market entrants?
The primary challenge to new market entrants is obtaining a licence from the OIC which, due to the OIC’s current policy, has not been granted since 1995. A new market entrant may have to consider other options such as acquiring shares in an existing insurance company, subject to the requirement to maintain 75% local ownership.
To what extent is the market being challenged by digital innovation?
The offer for sale and the writing of insurance contracts via electronic means are permitted under the OIC’s notifications issued in 2017. Any insurance company wishing to use electronic and digital mechanisms in its business operations must register itself with the OIC (separately and in addition to obtaining an insurance licence). In addition, the insurance company must comply with specific procedures and conditions under the said notifications, as well as general requirements under the laws governing electronic transactions. There is a likelihood that an increasing number of insurance products will be marketed and distributed through digital means in the near future. However, to date, most insurance products are not distributed through online means.
Over the next five years what type of business do you see taking a market lead?
Most businesses and industries, including insurance and reinsurance, are rapidly adopting digital innovation for their operations. It is predicted that businesses relating to information technology will gradually take a market lead over the next five years and the demand for relevant insurance products, such as cyber-crime and data protection policies, would also increase as a result.