In many respects, Taiwan is very well-positioned for smooth development of its insurance market. Among the positive basic characteristics are a well-educated and prosperous population with per capita national income last year of US$19,315. Calculated by purchasing power parity, per capita GDP comes to US$45,900. Taiwan also has a high gross national savings rate of over 31%, and total GDP exceeds US$1 trillion when adjusted for purchasing power parity, ranking in 21st place among the countries of the world.
The Taiwan insurance market is one of the largest in the Asia-Pacific region. It is well known for having the world’s highest insurance penetration rate, with premiums equal to just over 18% of GDP in 2014, due mainly to the 17.23% represented by the life insurance sector. In terms of insurance density (average insurance expenditures per capita), Taiwan was in ninth place in the world in 2014 at slightly over US$4,000, again mainly because of life insurance policies. In the global ranking of insurance markets by premium income, Taiwan was in 11th place overall last year with US$95.6 billion and ninth place for life insurance, with a nearly 3% share of the global market.
“In recent decades, the Taiwanese people have gained a good awareness of their insurance needs and frequently utilize insurance products for their protection and financial plans,” notes Alfred Cheung, chief executive officer in Taiwan for PCA Life Assurance. “Insurance companies have strived over the years to develop new products to meet customer needs and a good variety of insurance products can be found in the market. Customer service of insurance companies has also evolved in a remarkable way with the growth of the service sectors in the local economy.”
In addition to what has been achieved to date, new opportunities are also arising for the future due to the existing characteristics of the local market combined with significant new trends. As a result of the following developments, the industry has the chance to provide new and innovative product offerings and enhanced customer service:
Protection insurance gap
Despite the high overall penetration rate for the life insurance sector, the average amount of protection insurance is actually low compared to other mature markets. According to the latest data compiled by the Taiwan Insurance Institute, the average amount of insurance death claims in 2014 was NT$560,000 (about US$17,500) and the average face amount of new business was NT$610,000 (a little over US$19,000). This level of protection can hardly meet the financial needs of an average household that has lost its breadwinner. On the non-life side, the penetration rate is much lower than for life insurance. “There are big protection insurance gaps to be filled and growth opportunities for insurers to capture,” notes Alfred Cheung.
Aging society and policy reforms
Taiwan is expected to become an “aged society” by 2018 with 14% of the population aged 65 or older, and a “super-aged society” by 2025 with the elderly population exceeding the 20% mark. Currently, around 100 working age people support some 35 dependents, either children or the elderly. By 2060, however, 100 working age people will be forced to support 99 dependents, putting a far greater burden on workers in the future. This demographic shift will pose a major challenge to the social insurance regime unless reforms are implemented.
The National Health Insurance system has gone through several rounds of financial reforms to make it more sustainable, but those adjustments have also meant higher contributions from businesses and individuals and more cost containment for the medical service providers. The public will have to pay more for better medical treatment and service. The labor pension scheme has also seen legislative changes to allow for individual contributions for higher retirement accumulation, and the possibility of opening up the investment options for such individual contributions has been discussed. A Long-Term Care Act has been introduced recently to provide for funding for the long-term care need of the aged, and its passage has increased the awareness of the general population about the need to be prepared for the potentially large expenditures that senior citizens may have to face. Commercial insurance can be an important and viable solution to supplement the social insurance reforms.
Internationalization and innovation
The insurance regulators have endeavored from time to time internationalize the local market and encourage product innovation by welcoming foreign insurers, adopting more efficient product approval regimes, and approving or introducing unit-linked participating insurance and foreign currency and even RMB-denominated products. Consistent efforts have also been made to adopt international accounting and reporting standards. Online insurance regulation was introduced last year and is set to be further liberalized.
Chairman William Ming-Chung Tseng of the Financial Supervisory Commission (FSC) earlier this year proclaimed the beginning of a new era of product innovation for the financial services industries, including insurance. The most recent effort of the FSC is to encourage local insurance companies to compete internationally by taking advantage of Taiwan’s strong financial resources and superior geographic location. It has begun a series of actions related to foreign investments and Offshore Insurance Unit regulations to give insurance companies more incentives to extend their businesses overseas or in an offshore unit, and further actions from the regulators are expected to keep the momentum going. These initiatives have created a favorable environment for product innovation and service improvement in the insurance industry.
According to Taiwan’s semi-governmental Institute for Information Industry, 69.1% of all people in Taiwan aged 12 or above have a smart phone or a tablet PC–and 25.4% of them have both. These percentages are expected to continue increasing year by year. In addition, Taiwan is well known as a production center for world-class information and communications technology. These conditions are highly positive for the steady development of e-commerce capabilities enabling the insurance industry to provide ever more convenient service for its customers.
Capitalizing on the opportunities
With support from the regulatory authorities, the insurance industry in Taiwan is able to capitalize on these growing opportunities. Further and speedier action by the authorities, however, would help create an even friendlier environment for encouraging innovation and development. Suggested policy directions to encourage product innovation include:
- Providing more tax incentives and a longer exclusivity period for new products.
- Increasing, or removing entirely, the sales-volume cap on foreign-currency products.
- Accelerating the pace of liberalization of online insurance and widening the scope so as to make the e-commerce process easier and more convenient for consumers.
- Further liberalizing insurers’ general account investment opportunities to enhance product innovation and enhance overall portfolio management through the use of a broader array of modern risk management tools, including asset and liability hedging instruments and financial derivatives.
Both the AmCham Taipei Insurance and the local insurance associations are eager to join forces with the regulators in working to bring the Taiwan insurance industry to the next level.
Part 1 of 7 in a Special Report on the Taiwan Insurance Industry, produced by the Insurance Committee of the American Chamber of Commerce in Taipei and sponsored by Ace Life, AIG Taiwan Insurance, Allianz Taiwan Life, Cigna Taiwan Life, PCA Life, Prudential Life, and Zurich Insurance (Taiwan).