Taiwan, the fourth-largest life insurance market in Asia with the highest life insurance penetration in the world (sigma No 04/2015), continues to see positive momentum in life premium growth. Ms Vicky Huang and Ms Angela Lau of Swiss Re Asia explore.
Taiwan’s life and health insurance sector expanded by a healthy 5.6% in 2015, with premium income reaching TWD2.93 trillion (US$91.2 billion). Growth was driven by a strong 25.8% increase in individual annuity business, a 5.1% gain in individual accident and health premiums, and a 3.5% rise in individual life business. Premiums from group business, on the other hand, were largely flat in 2015.
Positive life premium growth trend continues
While annuity has been a bright spot in recent years, sales remain volatile.
The announcement of stricter regulations on interest-sensitive annuity insurance products in 2014, including higher charges for policy cancellation, led to a sharp 36% year-on-year decline in sales of these products. New premiums dropped 41% in tandem.
Growth however rebounded strongly in 2015 as the market adapted to the new regulations. Annuity is expected to remain a key growth pillar in 2016 and beyond.
Life insurers’ profits remained solid in 2015, partly supported by decreasing operational expenses. Sector net income after tax stood at TWD117.52 billion, compared with TWD102.44 billion in 2014.
Closing the protection gap
Despite its well-developed insurance industry, Taiwan continues to see significant protection gaps in death benefits, healthcare and old-age related needs. Swiss Re estimates Taiwan’s mortality protection gap stood at US$177 billion in total and $30,762 per working person in 2014.
Taiwan’s rapidly ageing population represents a key challenge to both society and the insurance sector. The number of Taiwanese aged 65 and above has more than doubled in less than two decades, growing to 2.5 million in 2010 from 1.1 million in 1990, and this figure is expected to reach 4.7 million by 2025.
Across Asian economies, Taiwan has one of the highest percentages of elderly population at 12.3% as of 2015, only after other developed economies like Japan, Hong Kong and South Korea. This ratio is expected to reach 19.8% by 2025.
Dealing with the strains of an ageing society is not new to insurers, although the future is difficult to predict given ongoing, and sometimes radical, medical innovations. In some ways, the lack of a suitable and comprehensive product suite for the senior segment in healthcare and LTC presents both an opportunity and challenge to insurers. Existing products typically focus on treatment, but very few embrace prevention and care management. In the meantime, recognition of the need for LTC has grown.
In May 2015, Taiwan passed a draft Long-term Care Insurance Act, which is expected to come into effect in 2017 and benefit 760,000 people in need. Yet, in order to help close the care protection gap, insurers must better understand consumers’ perceptions and preferences.
What do consumers think about their care needs?
To hear the voices of our consumers, Swiss Re commissioned a study of care funding preferences and solutions in six key Asian markets – China, Hong Kong, Taiwan, South Korea, Japan and Singapore – covering a sample of 6,300 consumers (Spotlight on Care Solutions in Asia, Swiss Re, October 2015).
Most respondents in Taiwan agree it is important to plan for care needs, but less than 50% believe they are prepared for it, either financially or psychologically. They feel better prepared to meet their parents’ care needs, which they see as more urgent than their own (see Figure 1).
The perceived care funding gap, that is, the difference between available financial resources and what people perceive as the cost of their future care needs, is around 40% on average among all respondents.
A key reason for the under-preparedness is that 49% of consumers simply do not know where to start. There is a tendency to postpone until it is too late.
Consumer preferences for care offerings
Those who take a more proactive stance to planning for future care needs typically rely on maintaining a healthy lifestyle, saving up and purchasing insurance.
When it comes to insurance products, the majority of respondents prefer care benefits provided as a bundled offering alongside other life and health benefits. Less than 20% of respondents favour standalone care cover. At the same time, more respondents prefer care benefits paid as a regular monthly income stream rather than as a lump sum payout. This probably reflects the desire for regular financial support along the rehabilitation journey.
While determining how best to provide basic products is good “food for thought” for the insurance industry in fulfilling its societal role to close the gap, the heterogeneity of consumer groups as well as the proliferation of information technology mean insurers will need to consider incorporating other value added services (VAS) into their product offerings to act as differentiators.
In Taiwan, medical consultation, home care and home nursing, and emergency assistance are the three services most valued by respondents looking to purchase care insurance products (see Figure 2).
Approximately 40% of respondents are willing to pay up to 10% more for VAS. Among all age groups, retirees (aged 60 and above) appear most willing to pay for VAS options.
How can we care more in the future?
The insurance industry needs to step up its efforts to provide affordable and customised care products and services to help more consumers close their future funding gaps. Proactively educating consumers on care choices is important because it helps them prepare in advance for their care journey and gives them peace of mind.
Ms Vicky Huang is a Swiss Re Economist and Ms Angela Lau is Senior Health & Medical Solutions Manager, HK & Taiwan, Vice President, both at Swiss Re Asia.