Price war in auto segment emerges with 65% loss ratio

A fierce price war in the auto insurance business is likely to ease as the loss ratio has reached 65% of total premiums earned, says the Thai General Insurance Association (TGIA).

Auto insurance comprises around 60% of total insurance premiums.

"The industry's loss ratio for auto insurance was logged at 65% in 2018, above the maximum level of 62% seen during 2015-17. Some companies could face a financial struggle," said TGIA secretary-general Anon Vangvasu.

The high loss ratio, the ratio of total losses incurred in claims plus adjustment expenses divided by total premiums earned, is a result of an intense price war in auto insurance, said Mr Anon.

"The high loss ratio has climbed from 60% registered around five years ago and entered an operational loss zone for insurance companies where the loss ratio exceeds 65%," he said.

The fierce price war has occurred for both voluntary and compulsory auto insurance, in contrast with the previous scenario where the high loss ratio was mainly associated with voluntary auto insurance, said Mr Anon.

The high loss ratio at 65%, below the break-even point of the auto insurance business, will pressure small insurance companies to increase capital or cut costs, he said.

Large insurance companies experiencing a high loss ratio are expected to delay accepting new auto insurance products or revise policies to fit different types of vehicles, rather than compete on price, said Mr Anon.

The high loss ratio is anticipated to force insurance companies to migrate their sales channel to focus on direct sales and online sales, he said.

"The online channel is the best direct marketing move to help save on both commissions and operating expenses," said Mr Anon.

He said the general insurance business is expected to continue growing at around 7% this year, a ratio close to last year's growth, with competition poised to remain high.

"Insurance companies have incorporated technology in their business, but this move is not well connected to [younger] customers, as those aged 20-30 who are familiar with new technologies are not insurance buyers yet," said Mr Anon.