While pleased with Taiwan insurance industry’s continued growth, the regulator continues to keep an eye on the future, shaping and supporting the industry to meet the needs of the market and enhancing the competitiveness and market conduct of insurers, shares Ms Grace Lee, Director General, Insurance Bureau, Financial Supervisory Commission.
As of the first quarter of 2016, total insurance premium income increased by 8.99% y-o-y to NT$795.4 billion (US$24.69 billion). The life insurance sector recorded premium income of NT$758.8 billion, while for the non-life sector, it was NT$36.6 billion.
This growth momentum has continued from 2015 when the Taiwanese insurance industry received premium income of NT$3.06 trillion, an increase of about 5% y-o-y from NT$2.9 trillion in 2014.
Commenting on the performance, Ms Lee said the FSC is happy to see any progress of the insurance industry. And since its growth is in line with consumers’ needs, the FSC will continue to encourage insurance companies to develop diverse and innovative products to provide complete coverage for consumers as well as to meet their individual needs.
Meeting market needs
One area that the FSC is focusing its attention on is that of meeting the needs of an ageing population. “The FSC encourages insurance companies to appropriately adjust resources allocation and develop insurance products that meet the needs of the elderly. In addition, insurers can combine the resources of medical and care service institutions to enhance the protection and living quality for the elderly,” said Ms Lee.
The FSC has also required the Life Insurance Association to do research on the standard contents and definitions of insurance products’ diseases’ terms. The purpose is to enable consumers to understand and compare such products easily and to reduce insurance claims disputes arising from health insurance products.
TREIF, solvency standards
Another area of focus for the FSC this year includes improvement of the Taiwan Residential Earthquake Insurance Scheme (TREIF).
“In recent years, large-scale earthquakes have caused severe disasters, such as the 921 Great Chi-chi earthquake in 1999 and Tainan earthquake in February 2016. With the experience we learned from those earthquakes, the FSC has requested TREIF to promote mechanisms with regard to catastrophe relief, risk management and claim handling and increase policy take-up rate,” she said.
Also, in line with International Regulatory Solvency Standards, the FSC has reviewed regulations of the Risk Based Capital system since 2015 – which include asset risks, insurance risks, and interest rate risks. It is expected to be completed by the end of 2017.
Regulatory enhancements
As for recent regulation amendments announced, these include amending “the Regulations Governing Public Disclosure of Information by Non-life Insurance Enterprises” and “the Regulations Governing Public Disclosure of Information by Life Insurance Enterprises” to strengthen consumer protection and inform the public of important messages related to public interests.
“Limited partnership” was also introduced as one of the appropriate organisational types for certain enterprises since the “Limited Partnership Act” came into effect on 30 November 2015. To increase and to diversify the investment channels for insurance companies, the FSC is planning to include “limited partnership” as one of the invested entities that insurance companies can invest in when they invest in special projects, public utilities, and social welfare enterprises, she shared.
Responding to FinTech
The global development of FinTech is also one of the most important factors that has affected the Taiwan insurance market. Ms Lee said that in order to respond to the rapid developments of the combination of financial products and digital technology, the FSC has relaxed the investment limitations. Insurance companies can invest in financial technology businesses engaging in Big Data analysis, interface design, software research, internet of things (IoT), and wireless communication.
“This can help insurance companies to develop in line with global FinTech developments. The FSC also encourages insurers to introduce innovative insurance products from aboard to meet consumers’ needs,” she said.
Secondly, with the latest trend of Big Data application, “the FSC has encouraged insurance companies to advance their products by utilising some new notions and technologies that are essentially considered to be beneficiary to their potential customers”.
In order to encourage the insurance industry to develop insurance products that have spill-over benefit through the usage of FinTech innovation, the FSC has allowed life insurers to engage in in-kind payment insurance businesses.
“In-kind payment includes health management, medical, nursing, long-term care, elderly care and funeral arrangement services and items necessary for service delivery. Therefore, insurance companies can design health management products, which link premium with the insureds’ health condition,” she said. These health management products can help people pay more attention to health beforehand and prevent disease occurrence, reduce insurance claims payment, and promote the development of related industries.
Furthermore, the FSC has shortened the review period of insurance products that insurers need to acquire prior approval of before sales, extended the exclusive sales period of innovative insurance products, reviewed expense loading rate of health insurance, relaxed the standards for recognition of insurance companies with good performance to adopt the use-and-file procedure for launching new types of insurance products.
Creating more competitive insurers
In an Asia Insurance Review interview last year, Ms Lee had discussed FSC’s 2014 plan of making Taiwan’s insurance companies more competitive. These areas include online insurance and offshore insurance business.
She shared the progress of these initiatives:
Online insurance: Insurance companies have been allowed to engage in online insurance since 26 August 2014. The FSC continues to promote the online insurance business by expanding the scope of online insurance business. Insurance products such as comprehensive bicycle, traditional annuity, interest sensitive annuity insurance products and endowment insurance products covering a period which is shorter than 20 years or endowment age no older than 75 years of age are allowed to be offered online.
Other measures are taken to facilitate the online insurance – natural person certificates can be used to verify personal identity when an applicant is different from an insured, statutory heirs are allowed to be appointed as beneficiaries of life insurance products and procedures of inquiry for e-certificate of compulsory automobile liability insurance, automobile insurance online payment registration and ID verification have been simplified.
“The FSC will continue to review the developments of online insurance and practical experiences in other countries as reference to the next phase of online insurance,” Ms Lee said.
Offshore insurance business: At the time of interview, 19 insurance companies are approved to establish offshore insurance units (OIU), and 14 of them have commenced business.
To deal with practical needs, assumed incident rate may be used for product pricing; the scale of investment objects in investment-linked insurance are expanded; banks can engage in OIU premium financing business; an electronic payment institution can engage in premium receipts and benefit payments transaction of OIU insurance products; and the counterparties of ceded reinsurance of OIU are not limited to insurance enterprises outside the territory of the ROC.
Since offshore insurance business is a brand new business for insurance companies, so far the total premium of OIU has grown steadily albeit “not too fast”. “We will pay attention to the developments of OIU and provide necessary assistance,” Ms Lee said.
Looking ahead
Ms Lee was appointed as Director General of the Insurance Bureau in April last year. About a year on, she said: “I’m very eager to see that our insurance companies can play a pivotal role to promote economic developments and to fulfil its social responsibility.”
Looking ahead, she said that the world is in an unstable landscape. Every country is facing downside risks in economy and Brexit has also impacted the global economy. “Foreign investments by Taiwan insurance companies account for over 50% of their funds. Though they are experienced in investments, we will strengthen supervision. Insurance companies should enhance risk management in such an unstable and changing investment environment, to promote sustainable operation and policyholder protection.”
Besides that, FSC will strengthen the discipline of market conduct. To prevent cut-throat competition, insurers are not allowed to sell insurance products with low prices that cannot cover their expenses. She added: “On the other hand, since the prompt corrective action measure was added to the Insurance Act, the FSC can take over an insurance company with deteriorating financial condition. There are now no insurance companies with negative net worth in the Taiwan insurance market. It has a significant meaning for financial stability in the insurance sector.”
“Promoting healthy developments and financial stability of the insurance sector is one of the most important objectives in insurance supervision. We will continue to contribute to maintain sound and sustainable developments of our insurance market and financial stability,” she concluded.