3 October, 2015
With the objective of strengthening the long-term potential of the Thai insurance industry, the Office of the Insurance Commission (the OIC) has proposed a new Life Insurance Act and Non-Life Insurance Act (the Draft New Insurance Acts). These Draft New Insurance Acts will replace the current Insurance Acts in place for over 20 years, and harbor significant ramifications for the industry.
The Draft New Insurance Acts aim to modify and modernize laws and regulations relevant to insurance businesses, to conform with global standards and be in line with the Financial Institutions Act, B.E. 2551 (the Financial Institutions Act of 2008), aligning the standards of the insurance industry with those of the financial sector, and reflecting the current economic situation.
If these Draft Acts come into force, they will unlock exciting new opportunities for major players who have already begun preparations to adapt to the changing regulatory environment. On the one hand, companies who are not prepared for, or are unaware of, the significant transformations taking place in the governance of the industry may experience a rude awakening.
A summary of proposed key changes are set out below:
Establishment of Insurance Companies
One of the most eagerly awaited changes is the reduction of the proportion of voting rights (from 75% to 51%), shareholding (from 75% to 51%), and director positions (from 75% to 51%) that must be held by Thai nationals in an insurance company. Authorities even have discretion to relax restrictions further, in some cases allowing shares and/or director positions to be held entirely by foreigners.
The concept of a reporting obligation for any shareholder owning at least 5% of the company's subscribed shares has been adopted from the Financial Institutions Act.
Also, holding more than 10% of an insurance company's total subscribed shares is prohibited, unless approved by authorities.
Preparation of Accounts, Financial Statements and Reports
The Draft New Insurance Acts empower the Registrar (secretary-general of the Insurance Commission) to set its own standards, which differ from the common accounting standards. Licensed auditors, in addition to possessing an audit license, must also be individually approved by the Registrar to audit an insurance company's financial statements.
Transfer, Amalgamation and Discontinuation of Business
Under the current Insurance Acts, the mergers and acquisitions process can be a difficult and discouraging exercise. The Draft New Insurance Acts clears a path by, for example, permitting an acquirer to report its acquisition plan to policyholders. If objections have not been raised after one month, then the law would deem the acquisition permissible, with no further approval required.
Amendment of the Condition or Operation of the Company
If the condition or operation of an insurance company may cause damage to the insurance creditors or the public, the Registrar, empowered by the Draft New Insurance Acts, may revoke the company's insurance business license.
Liquidation
The Draft New Insurance Acts amend the criteria governing liquidation to be consistent with the new principles for the transfer of debt (change of insurer), in that the transfer of debt may be done simply by an insurance company notifying policyholders without the need to obtain consent, unless there are changes to the terms and conditions of their policy, in which case the insurance company must receive the consent of the policyholder.
Life Insurance Agents and Brokers
The Draft New Insurance Acts stipulates that a life insurance broker, who is considered a juristic person, shall be jointly liable with the insurance company for any damages caused by the broker's actions.
Registrar and Competent Officials
To facilitate cooperation between foreign authorities responsible for insurance regulations, the Draft New Insurance Acts state the obligations of the OIC in assisting foreign authorities if requested.
These Draft New Insurance Acts are currently undergoing legislative consideration for promulgation, having recently concluded the public hearing phase. Once finalized by the OIC, the Draft New Insurance Acts must be reviewed by the Ministry of Finance, before being forwarded to the Prime Minister's cabinet for final approval. No timeline has been announced regarding when the New Insurance Acts will come into force, but we anticipate it would be approximately the end of 2015, at the earliest.
For further information, please contact:
Sorachon Boonsong, Partner, Baker & McKenzie
sorachon.boonsong@bakermckenzie.com
