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Feb 2023

Insurance regulation for a mature market

Source: Asia Insurance Review | Jul 2022

Taiwan still has scope for progressive measures to be adopted in order to provide a better insurance experience to customers. Taiwan Financial Supervisory Commission Insurance Bureau’s Ms Chiung-Hwa Shih spoke with Asia Insurance Review about how the regulator is working to create a better insurance ecosystem.
By Anoop Khanna
Financial Supervisory Commission (FSC) Insurance Bureau (IB) director general Chiung-Hwa Shih, speaking about how the country’s insurance industry handled the COVID-19 pandemic, said that Taiwanese insurers adopted multiple measures to assist their policyholders to get through the tough pandemic times.
The insurers also developed relevant insurance products to provide protection for medical expenses and income reduction.
Impact of pandemic
Ms Shih said, “Since the beginning of 2022, the pandemic risk has changed fast due to a rapid increase in the number of Omicron variant cases. This has increased the insurance protection requirement abruptly and led to a large number of applications, which have exceeded the insurers’ risk appetite and significantly increased their burden of underwriting and claims.
“Taiwan’s insurers, however, have high resilience in terms of risk-based capital and net worth ratio. In addition, some insurers have actively planned to increase their capital in response. The FSC has also set supervisory standards for risk management for pre- and post-launch of insurance products and will continue to urge insurers to fulfil their contracts, while maintaining the balance between consumer rights and sound business management by insurance enterprises.
“To ensure that during the pandemic the insurers maintain business continuity, the FSC had approved the temporary measures regarding business solicitation, underwriting, policy servicing, claims settlement and product review procedures,” said Ms Shih.
According to IB, policyholders affected by the pandemic could postpone premium payment and payment of interest on policy loans. Insurers have offered preferential rates on policy loans for economically disadvantaged policyholders in need of help. Insurers have also negotiated with tenants individually to offer postponements or reductions of rent payments.
Catastrophe insurance
Taiwan is located in the Circum-Pacific seismic zone, a region where earthquakes and typhoons frequently strike. To transfer natural disaster risks, the insurance industry offers catastrophe insurance including commercial insurance and statutory residential earthquake insurance.
In commercial insurance there are two categories: Earthquake insurance and typhoon and flood insurance.
Ms Shih said, “The statutory residential earthquake insurance programme includes the Taiwan Residential Earthquake Insurance Programme that was implemented on 1 April 2002, with the Taiwan Residential Earthquake Insurance Fund established to assume and spread residential earthquake risks underwritten by non-life insurers.”
She said, “Until May 2022, the cumulative liability amount for the residential earthquake insurance was NT$5.67tn ($19bn). There are 3.39m policies in force, representing a take-up rate of 37.28%.
“The residential earthquake insurance’s risk spreading mechanism employs a two-tier design to absorb earthquake risks. The total risk assumption limit of the residential earthquake insurance system is NT$100bn,” she said.
Fintech and regulatory controls
Speaking about the application of fintech in the insurance industry, Ms Shin said, “In terms of regulations, insurers can apply for experiments or trials in accordance with the Financial Technology Development and Innovative Experimentation Act and the Operation Directions Governing Applications by Insurance Enterprises for the Approval of Business Trials. Up to now, the insurance industry has completed one experimental case and 23 trial cases.”
Ms Shih said, “The FSC also has promoted the establishment of an electronic insurance policy certification, documentation and passbook platform, so that policyholders can check all the information on all their electronic insurance policies in one go through the technology platform established by the Taiwan Insurance Institute and the Life Insurance Association. Through this platform, we can achieve the effect of environmental protection, energy saving and carbon reduction.”
Blockchain and insurers
From 1 January 2021 an alliance of Taiwanese insurance companies uses blockchain technology for collaboration on policy conservation and claim settlement services. Policyholders only need to submit an application to a single participating insurer, and with the policyholder’s consent, that insurer can notify other participating insurers via blockchain nodes. This new pilot project promises to simplify and expedite the application process for policyholders.
Ms Shih said, “The FSC issued a set of Directions for Insurance Companies to Engage in Conclusion of Distance Insurance Contracts and Provision of Distance Insurance Services to allow insurers to discontinue the traditional in-person application process. In its place, they can use a double identity verification process, once before and once during video conferencing, in combination with e-signature of application documents.”
Insurance industry and climate change
Speaking about climate change and the industry’s response to emerging climate change risks and relevant supervisory measures for insurance sector, Ms Shih said, “Climate change-related risks assessments are required to be incorporated into insurers’ own risk and solvency assessment reports. The FSC also requires insurers to enhance climate change risk management mechanisms and risk management capabilities of managers.
“Starting from 2021, non-life insurers and reinsurers are required to incorporate natural disaster risks into capital adequacy ratio calculations. The FSC will continue to incorporate catastrophe risk in the insurance capital standard into the current RBC system.”
She said, “In order to identify how extreme weather caused by climate change might affect the solvency of non-life insurers, the FSC continues requiring non-life insurers to conduct stress tests.”
The FSC has also amended the enterprise risk management best practice principles for insurance companies and this requires insurers to fulfil climate change risk management obligations.
The Guidelines on Climate-related Financial Disclosures of Insurance Companies issued by the FSC require insurers to establish appropriate mechanisms to assess and disclose climate-related risk and opportunities based on the scale and nature of their business activities.
In addition, insurers are required to disclose climate-related financial information for the previous year in their corporate social responsibility reports or on their websites before the end of June each year starting from 2023.
Ms Shih said to encourage insurers to participate in green insurance, currently there are green insurance products such as offshore wind power insurance, agricultural insurance, public bicycle insurance, accident pollution liability insurance, and environmental pollution liability insurance.
She said FSC has also amended the Standards for the Levy Rates of the Life and Non-life Insurance Guaranty Funds, incorporating the underwriting of offshore wind power insurance and agricultural insurance into the Taiwan Insurance Guarantee Fund accrual standard, in order to provide incentives for insurers to promote relevant insurance.
Also, the FSC has urged the Non-Life Insurance Association to set up a task force to develop and promote new green insurance products. The task force has drawn up plans for the development of products such as green energy efficiency insurance, typhoon path parametric insurance and shared mobility insurance.
Future trends for the insurance industry
Asked about what trends could develop in the future for the Taiwanese insurance market, Ms Shih said, “Current insurance products are highly homogeneous, but in the era of the digital economy, emerging technologies have brought changes in consumption patterns. Future non-life insurance products will be bound to innovation.”
She said, “Additionally, in response to sustainable development and financial inclusion, green insurance products and financial inclusion products will be trends in development of the non-life insurance industry.”
Ms Shih said the FSC would continue to review regulations and promote relative measures, including a policy of allowing the establishment of internet-only insurers. The FSC will also encourage the development of innovative insurance products, expand protection-type insurance coverage for citizens and enhance digital transformation of the industry.
The FSC will amend the Compulsory Automobile Liability Insurance Act to insure electric bicycles, and will research, develop and promote new types of green insurance products. A 

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