With smartphone penetration rates exceeding 65%, Internet penetration at 80%, and a quarter of the population using at least three connected devices, Taiwan is among the most connected nations in the world. This connectivity is reflected in Taiwan’s surging e-commerce, which has grown on average at 10-20% annually for the past five years, reaching nearly US$30 billion in 2014 and is on track to reach US$34 billion this year.
Yet despite these high growth rates, one important market continues to be underserved by e-commerce: insurance. Online sales of insurance have been hampered by overly restrictive rules governing the kinds of insurance and amount of coverage that can be purchased, and also saddling the process with cumbersome requirements that have the unintended but real effect of discouraging consumers from completing insurance transactions online.
Customers are deprived of the ease and convenience of purchasing simple forms of insurance online. The result is lost revenue streams for insurers, but more importantly a reduction in the amount of essential coverage for members of the public.
The situation in Taiwan runs counter to global trends that have seen much of the insurance market move online in the past decade. In the United States, for example, 3.1 million auto insurance policies were purchased online in 2012, according to the Internet analytics company Comscore, accounting for roughly one-third of all auto insurance policies sold that year. A recent report by management consultancy Accenture revealed that nearly 60% of insurance executives assume that their competitors are making plans for strategic acquisitions of digital insurance startups over the next three years in order to position themselves for the changing insurance marketplace.
Online sales of insurance is growing not only in the developed West but also in East Asia. In China, online sales of insurance have grown 35% in annual comparisons, from 4.2% of all insurance transactions in 2014 to 5.7% this year, spurring the Insurance Association of China to set up an Internet insurance arm to reflect this growing significance. The number of insurers offering sales online has grown from 85 in 2014 to 91 this year, comprising 70% of China’s total insurance providers, with many of them teaming up with China’s world-leading e-commerce sites such as Tencent and Alibaba Group.
“China is speeding along rapidly in the e-space, not just in insurance but in other industries,” observes Eva Ip, president and CEO of Zurich Insurance (Taiwan), noting that this brings numerous benefits for the market. “For one thing, it enables a new insurer to very quickly make inroads into the market, since they don’t have to be bogged down by building a big branch network,” she says. Another benefit, she notes, is that savings on commissions to middlemen “can be passed on to consumers in the form of enhanced services.”
The momentum online is seen across the region. In Japan, for example, while two-thirds of insurance sales in 2014 were through agents, according to a report by Accenture, 61% of respondents to a survey indicated that they would purchase insurance online in the future. South Korea meanwhile has introduced online dedicated life insurance providers and online insurance “supermarkets” to allow for easy price comparison and purchase of medical, financial, and auto insurance.
Clearly global trends point towards greater access to online sales of insurance products, yet hyper-connected Taiwan lags far behind, with less than l% of insurance sales happening online. In the first nine months of the year, the Financial Supervisory Commission (FSC) reports that insurers earned some NT$6.8 million in premiums on life insurance policies sold online, compared to the overall market of NT$1.66 trillion in total life insurance premium income in the first seven months of 2015, the most recent total figures available, according to statistics released by the Insurance Bureau (IB). Non-life insurance fared better, with NT$145 million in premium income earned in the first nine months of 2015, according to the FSC, compared to overall non-life premium income of NT$81.44 billion, as per the IB.
Recently Taiwan has taken some steps to make its regulations on online sales of insurance more appropriate for the digital age. A Regulation on Online Insurance Applications implemented last year enables both customers that already have insurance policies – as well as new customers with either credit or debit cards – to purchase travel, term life, and accident insurance coverage online. The new regulations also do away with an “e-signature” process that both customers and insurance providers found unnecessarily complicated.
But the regulatory environment is still overly constraining. First, the legally available coverage is capped at a level that is too low to attract the interest of many consumers. For example, for travel insurance a ceiling is imposed of NT$6 million in online purchases from any one company or NT$10 million in total, while benefits for term life and accident insurance are both capped at NT$1.5 million.
In addition, while the need for an e-signature has been removed, it was replaced with a still cumbersome two-stage password process that also deters consumers. Zurich’s Ip notes that consumers must first register with an insurance company in order to be eligible to purchase a policy online. “Going through the registration process online can be quite a convoluted process,” she observes. “It deters a lot of customers, especially those who don’t belong to the ‘Internet generation,’ from utilizing e-commerce to buy the policy.”
Further, the range of insurance products that can be offered online is also highly restrictive, reducing choice and in fact deterring many consumers from purchasing the kinds of medical and health-related insurance products that the government is otherwise trying to encourage.
Insurers recommend that Taiwan work towards streamlining the online application process to enable consumers to directly access insurance products online. Relaxation of existing restrictions on the marketing of insurance should also be considered. Currently, insurers are restricted from advertising or marketing their products on third-party platforms, social media, and other digital formats. Surveys, however, indicate that nearly 70% of consumers search online for the purpose of obtaining information such as product reviews and price comparisons before making their buying decisions – and that social media, e-commerce, and other third-party websites represent important sources of such information. If insurers are barred from reaching consumers where they do their shopping, prospective customers are likely to miss important information that may prove crucial to selecting the right insurance coverage.
While most insurance sold online is non-life, the purchase of life insurance – particularly protection-oriented term-life insurance – is becoming increasingly prevalent through e-commerce in many markets. Once again, Taiwan’s overly rigid regulations hamper the development of this market, however. Under current regulations, for example, online purchases of life insurance products are permitted only when the purchaser and the insured are the same person, and the purchaser must be at least 20 years old. These stipulations make it impossible for one person to buy online insurance covering the entire family, such as for a family trip. A more reasonable alternative would be to restrict the policyholder to insuring other members of his/her family.
With a few adjustments in regulations, Taiwan can ensure that it is staying abreast of international trends by giving consumers the convenience of using new and popular e-platforms to obtain their insurance protection.
Part 2 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).