Seeking innovation in developing non-life insurance products

Innovation is a popular topic in Taiwan these days, recognized as an essential ingredient for this economy’s future development and prosperity. Yet in one crucial market – “non-life” insurance products aimed at protecting consumers and businesses from damage, loss, and liability – innovation has often been stifled by overly rigid regulations. Insurers are required to submit voluminous amounts of paperwork to the Insurance Bureau (IB) when seeking prior approval for new products. The entire process – including the insurer’s preparation time – can take four to six months. Small modifications to existing policies can be done on a use-and-file basis, though the information to be filed is also voluminous.

Unable to compete on innovative products that better suit the needs of their customers, domestic insurers instead all too frequently resort to competing solely on price, undercutting one another in a race to the bottom. Lacking the resources to properly evaluate the risk that each situation entails and pricing premium rates accordingly, many local insurers simply pass on the risk to reinsurers. Property insurance rates, for example, are lower today than they were a decade ago, despite the surging value of property over the duration. In the case of a sudden catastrophic event such as earthquake or typhoon, extensive payouts to the insured could be ruinous for many local non-life insurers.

“In the local marketplace, if you don’t bring in new products, at the end of the day what you see in the marketplace is price undercutting on the same pieces of business, which adds to the risk for the whole industry,” observes K.T. Lim, country manager for AIG, a world leader in Property and Casualty (P&C) insurance. “Most of the biggest P&C clients are in the IT or semiconductor field, so with that kind of catastrophic exposure, whether you are talking about typhoon or flood or earthquake, if you don’t have enough premium rates or you don’t have enough reinsurance support, if there’s a major catastrophic event, an insurance company can suffer significant losses and be caught under financial difficulties.”

The need for innovation in the marketplace is clear, particularly on the business side of the market. According to Lim, Taiwan’s commercial enterprises often require products that are tailor-made for their specific needs, but these products have to go through a prolonged filing process before obtaining approval from the regulators. Even standard products that need to be customized for particular customers require large amounts of paperwork. “You may have a standard product but you might need some customization in terms and conditions, but every time that you make a change, even a small change in the terms and conditions, you need to prepare a huge amount of documents to file for the changes,” says Lim.

The number of experts that need to sign off on the paperwork, including actuaries, legal counsel, claims specialists, underwriters, etc., is also onerous. According to Eva Ip, president and CEO of Zurich Insurance (Taiwan), filing a new-product application involves completing about 11 steps, while revising an existing product requires about 5 or 6. “You have to file a pretty large amount of paperwork, even when it just involves minor changes in product features,” she notes. For new product filings, this reportedly can add up to 10 to 30 pages of text on average, depending on the amount of accompanying statistical data required for assessment.

Industry experts say this degree of regulatory supervision compares unfavorably with the situation in many other markets. Ip notes that Hong Kong doesn’t require any product filing at all. “If you are an insurer and have a new product, you just launch it,” she says. “There are industry associations that basically self-regulate and have a code of conduct and requirements for people to observe. The number of scandals or complaints is not any greater than anywhere else.” Other countries in the area, such as Malaysia, require new product filings but not to the level of detail that Taiwan requires.

By streamlining the filing process for new products, insurers would be better able to meet the needs of their customers while generating a healthier arena of competition in a growing market. Zurich’s Ip notes that simplifying the filing process would offer a number of other benefits to the Taiwan insurance market. “It would enhance the pursuit of professionalism within the insurance industry and creativity in terms of product development,” she asserts, observing that a freer and more dynamic environment in which professionals are allowed to innovate would in turn attract talent to the island, as happens in Hong Kong and Singapore.

Innovation is a key to career development, and in a stringent environment such as Taiwan, professionals feel that their prospects are limited. “It isn’t easy to find the right people in this market – not like Singapore or Hong Kong,” observes Ip. “Greater relaxation will enable you to cultivate a better tier of insurance professionals.”

A bigger pool of good talent would then allow insurers to compete on strategy and innovation, rather than simply price, enabling the insurance industry to grow steadily through new product offerings. “The market has to get bigger, making the pie bigger for everybody,” says Ip. “At the moment I’m not seeing that the pie will grow very quickly.”

On the regulatory side, in fairness, progress has been gradually occurring. Lim notes that in years past, new product filings were several hundred pages in length. Moreover, in recent years the IB has allowed for a simplified approval process for certain sectors such as maritime, aviation, construction, and energy. For the simplified process, insurers need to fill out just two forms instead of the usual 11. “We are suggesting that the IB expand the scope of the simplified process into all of the commercial products,” says AIG’s Lim.

Looking at the speed with which business needs are changing in today’s economic environment, Lim adds a reminder that if Taiwan’s insurers are able to respond nimbly enough, it will help address customers’ needs as well as to build a stronger foundation for insurers and to prepare insurers to be more competitive so that they can expand into the Asian market.

Part 6 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).