Life Insurance Matters
Marketing new products into a market can provide many varied challenges and businesses should be prepared for some to work, and others to suffer. Life insurance has had to be very innovative in its approach to the Thai market, and with one of the market leaders suffering heavily late 2008, how do marketeers re-build consumers confidence? Thomas Schmid investigates.
When life insurance was first introduced in Thailand almost 60 years ago, the concept faced a difficult position as the Thai public was simply not familiar with it and viewed it with scepticism. People rather entrusted their savings to traditional bank accounts instead of purchasing an investment product based on life insurance. Virtually all companies engaged in the industry resorted to agents selling policies from door to door or, rather, to family, friends and acquaintances. It was personal relationships that generated sales in those archaic days.
One of the first players in the market was Bank of Ayudhya, which over the years partnered with several other companies until it finally formed a joint venture together with Germany’s largest life insurance provider, Allianz, and the local Charoen Phokphand Group (C.P.) about five years ago. This new company, Ayudhya Allianz C.P. Life Plc, is today Thailand’s third-largest life insurer after U.S. based firm AIA and home-grown company, Thai Life Insurance.
“It’s only been in the past 10 years or so that Thai people have come to understand the concept and benefits of a life insurance and that it is both an investment that can yield considerable returns and a protection vehicle for one’s family should the policy holder die prematurely,” explained Patchara Taveechaiwattana, the company’s chief officer for marketing.
Cautious Consumers
While traditional life insurance policies remain the firm’s premium products it also introduced investment plans some eight years ago when bank interest rates on savings and fixed deposit accounts started to slump.
“People began looking for higher-yielding investment opportunities, and that was exactly what we provide with our plan,” she said.
A contract typically runs for five years, during which the company guarantees a certain interest rate on paid premiums. For legal reasons, these contracts are still tied in with a life insurance policy. In case the contract holder expires before contract maturity, their next of kin would receive a return of 105 per cent calculated from accumulated premiums.
“Any terms longer than five years are not very popular for this type of product, though, because people think they could invest their money somewhere else and with larger returns,” Patchara pointed out.
In a further attempt to extend its product range, the company also began marketing an exchange traded fund (ETF) based on the SET50 index some two years ago, but the product failed to attract customer interest and has since been discontinued.
“Thais are very cautious and conservative when investing their hard-earned money. Although the product did guarantee the invested principal capital, I think people were just afraid of the idea of investing in stocks. It was a psychological barrier,” elaborated Patchara.
Tailor-made Plans
Yet this relative set-back did not prevent the company further exploring new ways to woo clients by offering one of the most diversified – and innovative – product ranges in the industry. The most successful product to date, again tied in with a life insurance, is ‘My Plan’. The concept enables clients to fully customise their individual plans, choosing from 216 different combinations.
“Nobody else in the industry has that, and we are a true pioneer in this respect. Other companies may offer four or five different yet rather rigid plans, and if none of them suits the customer, they have nothing else for them,” explained Patchara.
To custom-tailor their personal plan, clients first decide how many years they want to pay premiums. Secondly, they decide how much they can afford and are willing to spend in yearly premiums. Lastly, they determine when they want their plan to mature. The company would then calculate the final return including bonus based on the chosen parameters. The tremendous flexibility of this system is obvious and allows the company to appeal even to customers who might otherwise not have been able to afford one of the more rigid plans.
“We believe that every customer is different and that their financial means are different, too. ‘My Plan’ gives every prospective customer the chance to sign up for the life insurance plan that suits them best,” Patchara added.
In fact, the concept proved so successful that it now accounts for a 70 per cent share of the company’s business with more than one million customers nationwide distributed over the whole product range that also includes health insurance plans. About 60 to 70 per cent of clients reside in Bangkok while the rest are from other provinces, according to Patchara. The reason for that disproportion is that marketing initially focused on the capital after the joint venture was formed five years ago and only later reached out into other parts of the country.
In its latest drive to also capture the mass market, the company has also introduced specialised health insurance plans, for example a cancer protection plan that is currently advertised through television commercials.
“With only THB 20 a day, the customer can get up to THB 1 million coverage,” Patchara said.
Market Impact
Despite the company’s excellent positioning as the number three player, Patchara admitted that the market contracted slightly earlier this year after a peak in 2007 due to the global recession and also the financial crunch that befell AIA.
“AIA’s troubles had a negative impact on consumer confidence, of course, and the entire industry felt the effect as prospective customers were reluctant to put their money in life insurances and related investment vehicles,” she confided.
While the market has now leveled out and further decline apparently has been halted, Patchara expects it to rebound within the next three to four months. To restore customer confidence and industry credibility, the company is heavily promoting the fact that the government has recently doubled income tax exemption for life insurances from the previous THB 50,000 per contract per year to THB 100,000 per annum and policy. Combined with the company’s flexible plans and affordable premiums, Patchara believes that this will help the market to recover in the short to medium term.
“If you can offer a product where premiums are affordable while providing an excellent yield, it may not take a prospective new client very long to make a decision and take out a policy, or an already existing customer to sign an additional policy to benefit from the large income tax exemption,” she concluded.
