Inflation not a big problem, says LMG Chief

For insurers, like any other business, inflation - now at 7.6 per cent - may be the most dreaded nine-letter word at the moment.

But for John Fu, president and CEO of LMG Insurance (Thailand), inflation remains "manageable" - a far cry from the general gloom and doom atmosphere clouding much of the market.

Inflation is nothing to be scared of, Fu said.

One of LMG Insurance's major shareholders, the Liberty Mutual Group, has experienced inflation of 20 per cent a year in its South American operations.

In that market, used-car prices have actually appreciated and amid such conditions the firm could make a profit.

Fu said although high inflation might disturb future cash-flow expectations, interest-rate hikes that followed rising inflation could mitigate the blow.

To cope with an inflationary climate, and taking a leaf out of any conventional management book, Fu turned his focus on careful cash management and increasing productivity.

More practically, one of the main strategies Fu has employed since the start of his tenure here about a year ago is using a software system imported from the US to reduce the number of manual tasks; for instance, policy renewals.

Despite 35-per-cent year-on-year growth in the first quarter, the firm did not hire additional staff. In fact, increased productivity has actually reduced the head count, said Fu.

Maybe "increased efficiency in productivity" is simply another catch phrase popularised by MBAs. (Fu himself has an MBA from Pennsylvania State University.)

LMG Insurance was able to report Bt3.16 billion of gross premiums last year, up 18.5 per cent from 2006. First-quarter net revenue for this year was Bt1 billion, up from Bt766 million in the same period last year.

As a non-life insurer, LMG (Thailand) does not have life-long financial commitments like those of life-insurance firms, he said.

Fu, who hails from China and worked for the Liberty Mutual Group in Boston, Massachusetts, and Singapore, plans to keep growth in double digits.

For Liberty Mutual, which owns 20 per cent of LMG Insurance, Thailand remains a key growth market. If the average loss ratio for the Thai motor-insurance industry is considered high at 66.67 per cent, taken in inflation the same ratio in Singapore is actually much higher and more severe.

Besides the 70-per-cent loss ratio, the market is not growing, and companies are actually losing money, said Fu, who worked on the personal line in Singapore for four years prior to coming here.

In contrast Thailand has a growing young population - 24 per cent under the age of 16 - said Fu, who likes to keep tabs of statistics at hand. Home and car purchases should continue to grow.

Despite being overweight in the motor-insurance business, occupying 90 per cent of its portfolio of products, Fu said that sector should continue to be its focus. Other types of insurance, such as personal accident insurance, would be more suitable for a life insurer with plenty of agents on hand.

With these strategies, Fu looks to make LMG Insurance grow during these inflationary times.