The Taiwan Banker

Taiwan’s life insurance industry has about 421,000 employees, more than banking and securities. The country’s insurance penetration rate is third highest in the world. Life insurance plays an important role in the social safety net, but it experienced a particularly difficult year in 2022. Since taking office, Chen Huei-yu, the newly appointed chairman of the Life Insurance Association of the R.O.C., has established a dialogue platform for exchange among members, collaborated with the government, and worked hard to promote the sustainable development of the industry in accordance with the government’s expectations. Insurance is an important guarantee social security According to data from the Insurance Bureau of the Financial Supervisory Commission (FSC), Taiwan’s insurance penetration (premium income/GDP) reached 14.8% in 2021, ranking 3rd in the world; its insurance density (premia per capita) reached NT$ 136,000 (US$ 4,804), ranking 13th in the world. Faced with an unstable environment, Taiwanese people make extensive use of life insurance to increase their sense of security. The industry can be said to play a very important role in the social security net. The industry has employed more people each year. By the end of 2021, it accounted for 5% of total employment in Taiwan; it creates 20,000-30,000 new jobs each year. Thus, it makes an important contribution to Taiwan’s labor market as a whole. Huang Tien-mu, Chairman of the FSC, mentioned in a recent seminar entitled “Integration with the International Insurance Industry System” that insurance is a commitment to policyholders, and a facet of financial stability. Despite current severe challenges in the international political and economic environment, the industry has still followed supervision policies and standards to strengthen its stability, long-term solvency and resilience, and protection of policyholders' rights and interests, advancing in line with the international system. Huang said that the media voted “resilience” as the economic keyword for 2023. Stability and resilience have always been the most important goals of the FSC. Resilience includes solvency, risk management, internal controls, cybersecurity, and integrity culture. While strengthening resilience, the FSC will also continue loosening regulations to allow more products. The industry is under a lot of pressure. In 2026, it will have to conform to the 2017 International Financial Reporting Standards (IFRS17), and implement a next-generation solvency system with reference to the international Insurance Capital Standard (ICS), which will benefit member companies. The Life Insurance Association previously set up a task force to research IFRS17 and report to the FSC. A phased “Next-Generation Solvency of the Insurance Industry” task force will be established in the near future on implementation of the next-generation solvency system, researching topics such as the scope of eligible assets, debt discount valuation, and accrued asset risk coefficient standards for large, medium and small life insurers. The interest rate hikes in 2022 have highlighted mismatches between asset and liability structures in some companies. At this critical moment before IFRS17 integration, the Life Insurance Association suggests that insurers re-examine their balance sheets and prepare for any foreseeable solvency issues. In terms of compliance, the direction in which to revise relevant sub-laws of the Insurance Law has not yet been fully decided. Internal operations should be adjusted in line with IFRS17. In the case of practical difficulties, such as a domestic subsidiary of a foreign insurer, the parent company must implement IFRS17 in 2023 and provide system support, but the subsidiary still needs to wait for relevant domestic regulations to complete localization. This should be considered as early as possible when submitting proposals to the Insurance Bureau for amendments to relevant sub-laws. The Life Insurance Association can also provide assistance. Sound finances improve the efficiency of capital utilization Chen said that for now, insurers should think more about strengthening their health and looking for new opportunities. The Association will continue assisting the industry to develop new products to develop new business and promote policy-based insurance to fulfill its social responsibility. At the same time, it will continue searching for new investment products in order to improve the efficiency of capital utilization. Taking advantage of this global cycle of interest rate hikes, Chen said that it is necessary to design financial products that allow life insurance to be invested, whether in industries serving seniors, or next-generation infrastructure, so that risk capital can return to Taiwan. Looking forward, it proposes a plan to “kill two birds with one stone,” promoting economic development while reducing the risk of the financial system. In addition, since the declining birthrate and aging population are national security concerns, Chen suggests that the government announce relevant policies and supporting measures as soon as possible to allow life insurance funds to be directly invested in senior housing where ordinary people can live after retirement, resolving social problems while also allowing life insurance funds to find new investment targets. Combining life insurance with long-term care Taiwan will soon become a super-aged society. Provision of long-term care resources sufficient to meet the needs of the elderly population will be a major challenge for the government and society. Long-term care insurance can play an important role, allowing policyholders to prepare for the future without worrying about paying for care after losing daily functions. Most existing long-term care policies use cash benefits. Although this provides a certain degree of economic security, policyholders may still be unable to find suitable care when actual needs arise, or the benefits may be insufficient to cover costs. Many policyholders hope for substantial long-term care paid in-kind. Such products are already found on the market, but the industry needs to cooperate with suitable care institutions. Due to the specialization and capacity of cooperation teams, only a small number of companies have launched such products; and their services are limited to home care, not including accommodation. The Ministry of Health and Welfare is currently promoting the 10-year Long-term Care 2.0 plan, which mainly uses local communities. In neighboring Japan, the ratio of expenditures on home, community and institutional accommodation has changed from 42%, 8%, and 46% in 2007 to 44%, 17%, and 34% in 2017. Although the Japanese government intends to cultivate community services to replace institutional accommodation, the latter still makes up a high proportion. Thus, demand still exists for institutional long-term care. About 100,000 people leave their jobs every year in Japan to care for their parents; most of them 40-50 years old, at the peak of their careers. This has become an urgent crisis for Japanese companies. Taiwan’s situation is similar to that of Japan, so we should respond as soon as possible. Insurance combined with accommodation care is the direction of the industry. Many challenges still remain to be overcome. Care policies are long-term contracts with a period of 2-30 years. Estimating future costs, finding suitable long-term relationships with care providers, and maintaining service quality are the keys. If an insurer invests in care institutions to provide one-stop services, it must first deal with legal restrictions. A consensus is needed on the social level on development and commercialization of long-term care. The Association will continue to assist and encourage the industry to promote long-term care policies with diverse in-kind benefits in accordance with policyholder needs. To achieve this, it is communicating with the Ministry of Health and Welfare and the public to corporatize and scale long-term care. A mature industry will foster more tailor-made services that meet the needs of the public, creating choices outside of the government’s current Long-term Care 2.0 policy – which mainly focuses on home service subsidies – while also helping ease fiscal pressure. In addition to promoting protection policies that meet Taiwan’s long-term care needs, the industry can also promote its own development by participating in government land sales to build residential care institutions, and invest in senior housing or other relevant peripheral medical services and equipment to create a more complete long-term care market. As of the first half of 2022, Taiwan’s overall enrollment rate in personal long-term care insurance is only 3.9%. Policies with spillover effects using AI and IoT to deliver personalized pricing will better meet the expectations of the public. Fintech will highlight the convenience of insurance The Association observed that in the past, it was time-consuming and laborious for people to deal with multiple policies. In order to improve convenience for customers, it has established an insurtech platform using electronic policies and insurance passbooks. The platform includes one-stop claim settlement, allowing multiple claims to be processed with one application. This service has been used 300,000 times. Chen said that due to its characteristics, the life insurance industry can play an important role in the process of national social transformation. Being backed by the government, it has become an important element of the social security net, and also a national strategic industry. The Association will cooperate with governments at all levels to give full play to its industry advantages, both assisting in national development and making effective use of its large capital pool. Chen summarized with an analogy to classical music: “A piece of classical music has an exposition, development section, and recapitulation. Similarly, Taiwan’s life insurance should work together with other industries to write its own recapitulation.” Through continuous efforts, Taiwan's life insurance industry has jointly entered a new realm and become an important force for social stability.