Measuring the Degree of Market Concentration in Thailand Insurance Industry

This paper investigates market structure of life insurance and non-life insurance industry in Thailand. This paper uses the Concentration Ratio and the Herfindahl-Hirschman Index to measure the degree of market concentration. The paper also analyzes various data from all type of insurance premium, balance sheet and income statement to measure the concentration and competition trend. An analysis of life insurance premium, group market is unconcentrated where as ordinary and industry markets are concentrated. As for the life insurance balance sheet and income statement are concentrated market. An analysis of non-life insurance premium, fire, marine and transportation and automobile markets are unconcentrated. As for the non-life insurance balance sheet and income statement are unconcentrated market. In terms of the same sub-categorized product, personal accident and health insurance have difference concentrate degree. Personal accident in life insurance is near monopoly and highly concentrated market while personal accident in non-life insurance is loose oligopoly and moderate concentrated market. Health insurance in life and non-life insurance are tight oligopoly and concentrated market. The results conclude that the life insurance industry is more concentrated than the non-life insurance industry. In both segments of the insurance market, as well as in the overall insurance sector, there is a downward trend in market concentration, which indicates the success of the competition promoting process which allows a greater and better choice for customers.


Introduction
The insurance industry serves individuals and businesses with security products such as life insurance, health insurance, automobile and other liability coverage of non-life insurance. Moreover, insurance industry plays a major role in financial intermediation, thus enhancing a nation's financial and economic development.
Life insurance brings confidence and security for all income groups of society who may be affected by life's uncertainties. At the same time, health insurance has become increasingly important due to the rapidly growing elderly population and the advanced medical technology that enables people to have a longer life span. Developed countries such as the US, Europe, Japan and South Korea as well as developing countries such as Thailand are stepping into the aging society because the elderly population are growing at a faster rate that the child-bearing population. It is estimated that the elderly population in Thailand will increase to 8.0 million (11.9% of total population) in 2010, to 17.7 million (25.1% of total population) in 2030 (Office of the National Economic and Social Development Board, 2010). Thus, governments in most countries are making effort in encouraging the population to seek ways to increasing their savings through government bonds, real estate schemes and retirement plans and to boost confidence and security in the form of life and health insurance. With a reliable saving plan, our stable income can be fortified through a life insurance system that provides protection and secures our savings. If the individual learns to take advantage of a savings plan, the saving plan will help increase the country's savings and further lead to the nation's economic development and expansion.
Likewise, non-life insurance is beneficial to business and investment sectors of society who are inevitably faced with daily risks from unforeseen circumstances or natural disasters such as floods, hurricanes, tsunamis, fire, explosions, accidents arising from travel and carelessness. All these risks and financial damage can be alleviated by reliable non-life insurance system. As alluded to above, there were empirical studies that reveal the insurance industry in the term of insurance market structure. Jedlicka & Jumah (2006) analyze the Austrian insurance industry using insurance premium. The study finds a positive relationship between market share and profitability. The higher market concentration leads to higher market power and higher returns. Dumm & Macpherson (2006) examine insurance premium in Florida. The study finds that Florida insurance industry is highly concentrated that two companies have 50 percent of premiums and six companies have 99 percent of premiums in 2004. Glambotskaya (2009) studies the structure of the Belarusian insurance market by insurance premiums. The study finds that Belarusian insurance business concentration is very high. Herfindal-Hirshman index for the insurance sector in 2007, calculated on the written premiums, was 3540. The biggest share of the insurance market belongs to the state-owned insurers. Austin & Hungerford (2009) study the market structure of the health insurance industry in United State. The study finds that health insurance markets are highly concentrated. The concentrated markets lead to high premium and limit access to health insurance. All of the studies show insurance market having a high market share and high market power.
Past studies concentrated only on insurance premium. No study investigates in the part of balance sheet and income statement, in spite of the fact that these data are keys to the financial position. Thus, this paper use balance sheet and income statement to measure market structure. This study will determine all type of premium both of life and non-life insurance and learn more about balance sheet which include assets, liabilities and shareholder's equity and income statement which include revenue, expenditures and net profit for the most comprehensive and complete insurance market study. It is helpful to have an understanding of the current structure of the insurance industry and consider their future paths. This study is organized as follows: section 2 measures the degree of concentration in Thailand insurance industry; section 3 shows the results of market concentration in Thailand insurance industry; then section 4 presents conclusions of the study.

Method
A market is any arrangement in which buyers and sellers exchange goods or services at agreed-upon price and quantity. Market structure is implying the number and relative size of the producers in an industry. An industry's market structure is a reflection the similarity of products produced within the industry and the relative ease for new producers to enter the market. Market structure also determines the producers' competitive environment. Economists commonly categorize market structures into four basic types: perfect competition, monopoly, monopolistic competition, and oligopoly (Johnson & Stone, 1998).
The imperfect market such as monopolistic competition, oligopoly, and monopoly, which there are few sellers and differentiated products, results in some market power. On the opposite, perfect competition, a market structure characterized by a large number of small sellers supplying a homogeneous product incurs no market power. To consider size of firm and significant percentage of the market supply, there are two elements of market structure. They are concentration ratios and Herfindahl-Hirschman index.
The concentration ratio is the percentage of market share owned by the largest n firms in an industry. The largest firm concentration ratio is CR 1 . The most common concentration ratio is the four-firm concentration ratio (CR 4 ).
Let S i denotes the output of each firms in an industry, (i = 1,2,3 … n), and S T denotes the total output of all firms in the industry. Let firm i's share of the total market output is W i = S i /S T . Then the CR 4 is the fraction of total industry output produced by the four largest firms in the industry.
The HHI measures the size of firms in relation to the industry, but also as an indication of the amount of competition. If HHI decrease it is interpreted as a loss of market power and at the same time an increase in competition.

Results
The prevailing method of analyzing market structure is the measurement of concentration. This section focuses on life and non-life insurance industry in term of the CR 1 ratio, CR 4 ratio and Herfindahl-Hirschman index.

Life Insurance Industry
This part presents market concentration on life insurance premium, life insurance balance sheet and life insurance income statement 3.1.1 Market Concentration on Life Insurance Premium As shown in Table 3 and Figure 1, the life insurance industry in term of total premium indicates tight oligopoly and concentrated market with decreasing trend. The CR 4 and HHI of total premium are 62.08% and 1402, respectively, in 2011. Life insurance industry in Thailand has four sub-categorized products, including ordinary, industry, group, personal accident and health insurance product. The highest competition is group product and highest concentration is industry product. The CR 4 of group premium is 17.76 % and the CR 4 of industry premium is 78.04% in 2011. The HHI of group premium is 958 and the HHI of industry premium is 6348 in 2011. As shown in Table 5 and Figure 3, the life insurance income statement is tight oligopoly and concentrated. The CR 4 and HHI of net written premium are 62.21% and 1407, respectively, in 2011. The CR 4 and HHI of life policy reserve are 62.67% and 1208, respectively, in 2011. The CR 4 and HHI of profit from operation are 74.43% and 2099, respectively, in 2011.

Non-Life Insurance Industry
This part presents market concentration on non-life insurance premium, non-life insurance balance sheet and non-life insurance income statement.  As shown in Table 6 and Figure 4, the non-life insurance industry in term of total premium indicates monopolistic competition and unconcentrated market. The CR 4 and HHI of total premium are 37.03% and 531, respectively, in 2011. Non-life insurance industry in Thailand has four sub-categorized products, including fire, marine and transportation, automobile, personal accident and health in miscellaneous insurance product. The highest concentration is health product. The CR 4 and HHI of health premium is 61.23% and 1369, respectively, in 2011. However, the HHI trend of the health market concentration slows down.  As shown in Table 7 and Figure 5, the non-life insurance balance sheet is loose oligopoly and unconcentrated with increasing trend. As shown in Table 8 and Figure 6, the non-life insurance income statement in term of earn premium is monopolistic competition and unconcentrated whereas profit from operation is tight oligopoly and concentrated with increasing trend. The CR 4 and HHI of earn premiums are 38.23% and 672, respectively, in 2011. The CR 4 and HHI of total asset are 68. 41% and1962, respectively, in 2011. The CR 4 and HHI of policy liabilities are 66.15% and 1718, respectively, in 2011. The CR 4 and HHI of profit from operation are 63.12% and 1227, respectively, in 2011.

Comparative on Personal Accident (PA) and Health between Life and Non-Life Insurance
This part presents market concentration on the same sub-categorized product in life and non-life industry as personal accident and health insurance.

Conclusions
Using concentration ratio and Herfindahl-Hirschman index, it can be concluded the life insurance industry in Thailand is tight oligopoly and moderately concentrated. There are 24 life insurance companies in Thailand. The CR 4 and HHI of total premium are 62.08% and 1402, respectively, in 2011. Life insurance industry in Thailand has four sub-categorized products including ordinary, industry, group, personal accident and health insurance. The highest competition is group product and the highest concentration is industry product. An analysis of life insurance balance sheet and income statement shows similar results which are concentrated. However, all of concentration trends are slowing down, non-price competition is likely to increase. Customers always buy insurance from insurance company which has reputation and good after-sales service.
Using concentration ratio and Herfindahl-Hirschman index, it can be concluded the non-life insurance industry is monopolistic competition and unconcentrated. There are 65 non-life insurance companies in Thailand. The CR 4 and HHI of total premium are 37.03% and 531, respectively, in 2011. Non-life insurance industry in Thailand has four sub-categorized product under fire, marine and transportation, automobile, personal accident and health in miscellaneous insurance. The fire, marine and transportation, automobile and personal accident insurance markets are unconcentrated where as health insurance market is moderate concentrated. An analysis of non-life insurance balance sheet and income statement show similar results which are unconcentrated market. However, all of trends are upward because some companies exit from the non-life insurance market. There are 74 companies, 73 companies, 73 companies, 71 companies, 69 companies and 68 companies in period from 2006 to 2011.
The same sub-categorized product in life and non-life industry, personal accident and health products have difference concentration degrees. Personal accident in life insurance is near monopoly while personal accident in non-life insurance is loose oligopoly. Health in life and non-life insurance have similar results, which are tight oligopoly. Consumers will purchase personal accident and health insurance from insurance company which has intensive hospital networks and good after-sales service to ensure getting the best treatment. Every company attempts to improve their service so all concentration trends slow down, leading to the reduction in market concentration in life and non-life insurance industry.
By concentration measurement, Concentration Ratio and the Herfindahl-Hirschman Index, this paper concludes that life insurance industry is more concentrated than non-life insurance industry. In both segments of the www.ccsenet.org/ass Asian Social Science Vol. 10, No. 4;2014 insurance market, as well as in the overall insurance sector, there is a downward trend in market concentration, which indicates the success of the competition promoting process for benefiting consumers the most. However, alongside competition, it is necessary for government to conduct proper regulation in order to avoid adverse market situations.