A new measure allowing life insurance policies to be converted into other types of insurance policies took effect yesterday, which should benefit both policyholders and insurance companies, especially Cathay Life Insurance (國泰人壽) and Shin Kong Life Insurance Company (新光人壽), the government and analysts said.
The new measure enables policyholders to convert life insurance policies into annuity, medical and long-term care insurance policies the Financial Supervisory Commission said.
The commission said on Thursday that the policy conversion would also allow policyholders to receive benefits while alive. For example, once life insurance policyholders changed over their contracts to health insurance, the insurers would pay them when they suffered disease or injury.
Moreover, as people aged 50 and older typically face difficulties in subscribing to new medical and long-term care insurance policies, the new measure looks attractive, according to UBS Securities analyst Kelvin Chu (朱曉暐).
The Life Insurance Association of the ROC (人壽保險公會) also believes that in an aging society like Taiwan, such conversions would benefit elderly policyholders.
However, to safeguard the rights of policyholders, the commission requires a three-year “cooling-off” period that allows policyholders to revert to their original policies if they wish, unless they take a payout during that three-year period.
Life insurers are not allowed to solicit the insured to make any conversion through inappropriate marketing campaigns, with offenders subject to a fine ranging between NT$600,000 and NT$3 million (US$100,500), the commission said.
For life insurance companies, the new measure would also help them better manage their outstanding “Legacy policies” and thus narrow the negative interest spread arising from signing high-guaranteed rate policies in the past, Chu said. Legacy policies refer to those with a guaranteed policy return of 4 percent or above.
Chu said her analysis suggests that every 10 percent conversion could reduce Taiwanese insurers’ cost of liability by between 6 and 21 basis points, while leading to an earnings accretion of from 5 to 30 percent for the major players.
Cathay Life and Shin Kong Life, could see from 14 to 30 percent increase in earnings in the long term, on the premise of a 10 percent conversion in legacy policies, she said.
However, Cathay Life executive vice president Lin Chao-ting (林昭廷) said yesterday that it is hard to gauge the impact of the policy conversion for the time being.
“We welcome and will support the policy though it may bring longevity and mortality risks,” Lin said at the company's quarterly meeting with investors in Taipei.
Analysts said it is estimated that at least 4 million life insurance policies — worth more than NT$1 trillion in the local market — are eligible for the changes.
Additional reporting by Crystal Hsu and CNA
This story has been updated since it was first published.
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