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In 2015, Thailand’s insurance sector was valued as the 8th largest in Asia, with an annual growth rate of 4.5%. Thai residents spent approximately $334 on insurance every year, accounting for an overall penetration rate of 5.5%.

Life insurance accounts for the largest segment within the insurance industry in Thailand. These are annualized premiums paid out in the event of death or permanent disability; or after reaching a certain age. If you subtract life insurance from the overall industry pie, premiums decline considerably to $100/capita.

Photo credit: Thaire.

And this is where the largest potential for growth lies.

Thailand is already considered to be an upper-middle income country by the World Bank, with a GDP per capita of $6,033. When you combine that with a rosy economic outlook, it’s straightforward to predict that the size of motor and travel insurance will rise, too. Higher disposable incomes will lead to a greater outlay on cars and vacations – and the insurance industry is bound to benefit.

But one of the problems currently plaguing Thailand’s insurance sector is that distribution channels are antiquated and riddled with inefficiencies. To purchase an insurance plan, you normally have to arrange for a broker to meet you, prepare an unwieldy amount of paperwork, and wait for the bureaucratic red tape to churn its wheels.

The entire process is frustrating from a consumer standpoint and expensive for insurance companies too; broker commissions can eat into premiums and the process is only scalable by hiring a greater number of agents.

In 2016, a total of $5.1 billion in non-life insurance premiums were solicited via brokers, agents, and bancassurance channels. Precise figures for online distribution aren’t available, but the channel did grow by 25% as compared to 2015.

One of the startups that’s trying to simplify the insurance acquisition process is Frank. It offers motorcycle, car, and travel insurance direct to consumers in Thailand via its website. Consumers apply for their insurance product of choice, receive an instant quote, and for certain products, can have the policy in a few seconds. It’s fairly hassle-free.

Frank’s co-founder Harprem Doowa admits they’re still a small player in a very “traditional industry” but he affirms their product is largely positioned towards millennials and future Thai generations who are far more comfortable transacting online and will continue to carry these preferences along with them.

“This will take time,” he adds, referring to overall adoption of Frank’s product.

Harprem ecommerceIQ

Harprem Doowa, Co-founder and MD of frank.co.th

Innovating the insurance value chain

Another key challenge for Frank is ensuring that all parties involved in the transaction are equally adept and comfortable with technology. At the end of the day, it’s another distribution channel and isn’t inherently marketing its own product.

Frank’s policies are underwritten by companies like Bangkok Insurance and AXA – large, unwieldy, and geriatric organizations resistant to systemic change and constant reinvention.

“Insurance companies themselves are still not ready with the backend to underwrite policies immediately. Most still require manual approvals,” explains Harprem.

Another problem is that many potential customers opt out of the process because they’re unfamiliar and uncomfortable with scanning and uploading documents. They require the support of an agent or customer support advisor to complete the transaction – driving up costs and somewhat negating Frank’s value proposition in the first place.

The third aspect hampering progress in insurtech are Thai regulations: Harprem explains that while they protect consumers, there’s a real bottleneck towards online conversions because of the multiple in-person verifications required.

Value-add Partnerships

The fledgling insurtech company has experimented with a number of ways to make it more visible and enticing to customers. One of these is partnerships with popular ecommerce players like Lazada, Grab, honestbee, and foodpanda.

ecommerceIQThis may seem like a contrasting list of partners – how does quick food delivery equate to online insurance? – but Harprem is upbeat about the benefits its brought to the table.

“Doing partnerships with many companies increases our exposure 30X and when [consumers] go and search online for insurance, they see Frank. It wouldn’t be the first time and therefore they are more likely to buy from us,” he explains.

That’s a critical takeaway – startups aren’t flush with the kind of cash that large organizations have, they have to stay lean. By leveraging relationships with online companies, even something unsexy like insurtech can be galvanized into a winning brand.

“The more customers see your brand, the more likely they are to buy insurance from you at a later stage,” exhorts Harprem.

Where do the opportunities and threats lie?

Of course, it’s possible that large insurance companies eventually sidestep players like Frank and start selling direct to consumers via web channels but this will involve channel conflict.

Specifically, it will alienate the vast number of brokers who currently provide the bulk of insurance revenues. Another complication is the sheer time insurance companies take to make decisions, hampered by bureaucracy and lengthy internal approvals processes.

Harprem says the team is completely aware of this but isn’t overly worried. Frank’s nimbleness means it can continue innovating and pivoting as and when the need arises.

“It took one of our partners two years to update their home page.”

There are two additional areas which, if done right, could provide considerable value in the coming years. One is ‘microinsurance’, or insurance for low-income households that provides protection for health risks, property damage, or other specific perils.

Harprem says there’s definitely a business case for it in Thailand but adds that it’s not a priority for Frank right now.

The other opportunity is changing fintech from just another distribution channel to overhauling the entire product in itself. That’s where technologies like blockchain have the greatest potential.

In Singapore, this is already becoming a reality. Electrify, which allows users to buy electricity on the blockchain, closed a $30 million ICO yesterday. Insurtech company PolicyPal, which is powered by blockchain technology, allows underbanked consumers to purchase products like agriculture, property, life, and personal insurance.

“This, in my humble opinion is true fintech,” says Harprem.

Observe a supermarket. It’s normal to see shoppers carry out heavy bags of dog food and pet care essentials but the habit of buying pet food online remains a rarity. Probably because there is only a scarce number of brands in Thailand that offer an attractive selection of pet products online. This is interesting seeing as a growing economy such as Thailand’s experienced pet food sales of $736.7 million in 2015 and alone claims 44% of Southeast Asia’s pet care market.

And global spending is only expected to grow, especially in developing regions such as Southeast Asia, thanks to urbanization, popularity of the internet and increase in pet-product information availability. The pet food sector grew by 4% to $70 billion globally in 2015, and more of that spending is happening online as an estimated 38% of total pet food sales occurred online in China during 2015.

As the region follows closely in the footsteps of the superpower, it shows a huge opportunity for the growth of online pet related sales in Southeast Asia.

At the Petfood Forum Asia conference last year, Mariko Takemura, lead analyst for Euromonitor International, shared that Thailand reached $737 million in overall pet care sales and continued its five-year CAGR of 13.7%. There is clearly a demand for pet related goods in the country, so who is creating it?

Thailand’s pet owner demographic

60% of pets, both cats and dogs, in Southeast Asia still eat homemade pet food or leftover scraps because of the low penetration of commercial pet brands. According to Harprem Doowa, founder of PetLoft, one of the first companies in Thailand to offer pet products online, the behavior of giving pets homemade food is a sign of a developing economy but as the spending power of the population and the ‘humanization’ of pets increase, pet owners will look to providing their pets with more vet-recommended products.

“In Singapore, we typically see pet owners who demand quality and unique products and services for their pets. These owners consider their pets to be members of their family and they are really into organic or human-grade food for them,” says Jennifer Lee, the events manager for Pets Asia expo in Singapore.

In Thailand, this trend is also becoming a norm. The increase in pet-ownership and humanization of pets has led owners to turn to premium products to focus on the holistic well being of their pets, rather than feed them leftovers. And they’re able to afford it – Thailand’s middle class is expected to surge as GDP is predicted to grow by 3.2% this year and single-person households are on the rise.

“In developing regions like Southeast Asia, the pet product market is still an emerging market and the pet food business is growing rapidly,” says Neil Wang, global partner and president for Greater China at Frost & Sullivan. “In line with the region’s economic growth, an increasing number of people consider animals as family members and are willing to make purchases for them.”

But Thais won’t spend carelessly. Research from “Winning the zero moment of truth in Southeast Asia” showcases how nowadays, consumers, especially the prices conscious ones in the region, will research and compare prices before purchasing everyday use products. This extends to pet food as well as almost one third of respondents have compared and contrasted different pet food brands on the internet.

On demand delivery startup Lalamove also revealed that one of the most popular products purchased off its platform in Thailand is pet food.

Capturing the opportunity online

Research from L2 states that pet care in the United States, worth $760 million, has the highest ecommerce penetration among the home care sector. Amazon.com and Chewy.com, both originally pure play ecommerce companies, were revealed to hold the most market share of pet food online. Why? Because they saw the potential and started selling online early. Retailers and brands in Southeast Asia can use this insight as a benchmark to capture the region’s million dollar pet potential online.

The bulkiness of pet food packages, large range of products and regularity in consumption make the product an extremely viable candidate for ecommerce. Packaged Facts, a US market research company, conducted a survey that revealed about one-third of dog owners and cat owners like the idea of home delivery for pet food because it’s an “essential product consumed at a steady rate.”

Through an online platform, brands can offer delivery, a wide product selection and even package deals, product bundles, subscriptions or a variation of discount strategies to further incentivize shoppers.

Thai pet owners unfortunately do not really have these options available to them. Aside from pet specific online marketplaces such as Petpro.co.th and dogilike.com, there is still a lack of reputable products online even though the demand exists. Only recently, Lazada Thailand reported 600% growth rate in its pet product category, mostly made up of third-party merchants.

Even well known global premium pet food brands such as Alpo, Royal Canin and Purina can be found through select online marketplaces such as Orami.co.th and Lazada.co.thThe absence of brands, especially in the mid-priced range, with their own site to promote pet information and offer a new selection of products leaves the online space wide open for new entry by someone new.

No pet related brand has launched a brand.com

Brand should look at adopting the direct-to-consumer model for the following reasons:

  • Full control of a branded platform to use in capturing the attention of information-seeking pet owners with educational, SEO-optimized copy with smart content-marketing.
  • Less competition with similar pet brands in a marketplace or the pet aisle of a supermarket.
  • Direct access to consumer data used to increase customer lifetime value in the long run and re-target them later in the marketing funnel.
  • Save costs by jumping over the middle man -a brand would have to pay 5% commission on a marketplace it sells on.

The American website of Purina by Nestle dedicates an entire landing page to outlining the nutritional value of all its products and its benefits for animals – all to attract attention and persuade the browser to buy.

“A pet food brand with enough SKUs would have a good chance at infiltrating the middle class pet owner market,” – Harprem Doowa, co-founder of PetLoft.

Case study: Leveraging Pedigree’s offline popularity

Although competition is set to intensify between brands looking to capture the mid-range pet product market, Mars Thailand remains a market leader in the country. One of the best-performing brands under its portfolio is Pedigree.

The household name for pet food has maintained its popularity through a series of both online and offline strategies. The brand held a successful “Valentine’s Day” campaign through its community initiative, Pedigree Foundation, where it took to social media to spread awareness about donating to help stray dogs using the hashtag #ValentinesDay and solidified itself as a dog brand that cares.

The PedigreeUS Twitter account alone has over 18,000 followers and its various other country specific accounts have over 1,000. An online following such as Pedigrees could easily be utilized to send traffic to a shoppable landing page.  

Pedigree’s #ValentinesDay online campaign

Pedigree products at aCommerce Thailand’s warehouse

By only having online visibility on marketplaces, Pedigree does not have access to customer data, no control over grey market distribution and lacks control over content and personalization.

It becomes more difficult to sell online when the brand is up against competitors for the same customers on the marketplace.

Timing is everything.

Thailand’s pet industry is wide open for brands, both old and new, to enter and grab market share. And more and more global companies and VCs are figuring this out. 

Recently, Thai VC firm 500 TukTuks announced its investment in Singapore’s PerroPack, an online petcare ecosystem that includes Perrobox, an ecommerce subscription service for pets and PerroMart, an ecommerce platform for all things pets. It won’t be long before the same business models are implemented in Thailand.

As the Thai market begins to condense with the flood of global players and diversified consumer demand, more sectors become less attractive but the pet industry remains an empty bliss. Going online to find a necessity like pet food and pet care products will eventually become the norm as Southeast Asians grows increasingly familiar with the habit of ecommerce.

“The pet product market in Asia is becoming increasingly mature and diversified, and is likely to grow faster than the world average in the coming years, “ – Neil Wang, global partner and president for Greater China at Frost & Sullivan.

Any pet brands ready to graduate from the doggy paddle?