Draft insurance revisions adopted

The Executive Yuan yesterday approved a draft version of changes to the Insurance Law, including a measure that would establish a national earthquake insurance system based on similar models in the US and Japan.

The bill, which was submitted by the Ministry of Finance (財政部), will now proceed to the Legislative Yuan for its review next week.

MOF officials said the Insurance Law had been previously amended in 1992 and 1997 but, in order to raise the operating efficiencies of insurance firms, further changes were necessary.

Among the changes, MOF officials said, is a provision that would a create a national quake insurance system similar to those in Japan and the US. The measure would make insurance compulsory for homeowners with outstanding mortgages.

Other items would ease restrictions on how insurance firms run.

For example, insurance companies are required to at least gain a rate return of 6 percent on equity investments. The Executive Yuan has proposed lowering the minimum to 4 percent.

In addition, insurance companies would be allowed to borrow loans using their assets as collateral. But when it comes to lending to other companies, businesses or persons, the loans would have to be regulated by the government.

Currently, there is no oversight of lending by insurance companies, rasing the possibility that some firms could underwrite risky loans and jeopardize their policyholders.

Another provision would allow insurance companies to invest in other insurance-related businesses with government approval. For example, life insurers would be able to invest in property insurers.

One proposed change would allow property and casualty insurers to underwrite policies covering injuries, though these companies would have to gain government permission before doing so. Today, injuries are primarily the domain of life insurers.

The issue of tougher government oversight is addressed by the Executive Yuan's draft bill.

Measures approved yesterday would give more power to a government agency to deal with and discipline those companies that violate insurance laws.

In addition, the Executive Yuan has proposed strengthening the Stabilization Fund (安定基金) in order to protect policyholders. The Stabilization Fund -- the insurance industry's insurance fund -- collects fees from insurance firms, which are pooled and used to support insolvent companies.

But in order to prevent insolvencies, the Executive Yuan has also proposed the establishment of a minimum capital adequacy ratio (CAR, 風險基礎資本額) system. Basically, for every NT$1 an insurance firm has invested, it will be required to keep NT$2 on hand in cash.