An upcoming regulatory change over the premium structure of insurance policies might have mixed effects on banks and life insurers, an analyst said.
The Financial Supervisory Commission (FSC) is to implement a change, tightening its control on the structure of premium loading on life insurance products to contain runaway costs.
Life insurers rely on banks’ sales channels and large clientele bases to sell and promote their policy products at high costs in the form of customer discounts, bonuses, commissions and other fees.
Bancassurance fees amount to about 5 percent of an insurance policy, Life Insurance Association of the ROC (壽險公會) data showed, while regulators intend to lower the figure to 3.5 percent to contain costs.
The change is likely to benefit companies such as China Life Insurance Co Ltd (中國人壽保險) and Fubon Life Insurance Co (富邦人壽), as 59 percent and 38 percent of their life products, respectively, are sold via external bank channels, Yuanta Securities Investment Consulting Co (元大投顧) analyst Peggy Shih (施姵帆) said in a note published on Monday last week.
Banks’ commissions amount to 15 percent of total premiums for some regular pay policies, and 2 to 5 percent of single pay policies, Shih said.
“Commission for sales channels accounts for the highest additional policy expense rate,” Shih said.
To cope with high sales commissions, insurers charge their customers a premium loading by setting an expense rate in their policies, which averages about 3 to 3.5 percent for regular pay policies and 2 to 3 percent for single-pay policies.
Despite the high rates, insurers remain willing to sell single-pay products with negative loading margins, because the interest margins of those products are still profitable at about 1 percent, Shih said.
She said that insurers are able to compensate for the negative loading margin, as they are able to generate investment return rates of 3.2 percent against the 2.24 percent required interest rate for policy holders.
Banks are expected to see a dip in income from wealth management fees income following the change, adding challenges to the narrowing net interest margins following successive rate cuts by the central bank, Shih said.
Banking-focused financial companies that sell more single-pay policy products, such as CTBC Financial Holding Co (中信金控), are facing a 2 to 8 percent impact in its pre-tax banking profits, she said.
The effect is lessened for banking subsidiaries of life insurance-centric financial groups, such as Fubon Financial Holding Co (富邦金控), which also operates Taipei Fubon Commercial Bank (台北富邦銀行), she added.
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