Taiwanese like to buy insurance policies, but they prefer investment or savings policies over protection policies. Government statistics for last year show that Taiwanese purchased NT$745.2 billion (US$23.57 billion) of savings policies — 54 percent of insurance products sold — to take advantage of the higher guaranteed rates those policies promise. The trend has raised the question of whether many people do not have proper or sufficient coverage.
However, the aggressive marketing of savings policies over protection products has seen the combined premium income of life insurance companies reach new record highs over the past few years, with first-year premiums for last year totaling NT$1.39 trillion.
Many savings policies guarantee rates that are higher than government bond yields, and insurers must take from other investments to continue to pay out high returns and attract policyholders. This kind of investment is a risky and unsustainable long-term strategy, as well as a distortion of the nature of insurance products.
Because savings policies render insurance companies vulnerable to foreign-exchange risks, as most of the investments are overseas, the Financial Supervisory Commission late last month met with 22 life insurers.
It was concluded that the commission would regulate product features and distribution, capital strength, and asset-liability management more strictly in the second half of this year. The commission is pushing insurers to improve their financial and risk profiles with the implementation of new accounting rules — the International Financial Reporting Standards 17 (IFRS 17).
The commission is not banning the sale of savings policies; it is only targeting policies promising unrealistically high returns. Life insurers are expected to lower guaranteed rates on policies to reasonable levels. Although large insurers have financial assets that can withstand risk and fluctuations in the markets, smaller companies who guarantee returns, but have mismatched assets and liabilities, face a particularly high risk of failure.
The commission would prefer that the insurance industry promotes protection products, and plans to reward companies that concentrate on protection policies and prioritize the development of new products that would protect senior citizens.
Industry feedback has been mostly positive. Thus far, Taiwan Life Insurance Co has pledged to stop selling savings policies that promise high returns within one year, while Fubon Life Insurance Co has decided to lower its guaranteed rates for some policies in the second half of the year.
While a slowdown in the sale of savings policies should improve insurers’ asset-liability management, and adjustments in their product features and business mix should help them shore up capital strength ahead of the adoption of IFRS 17 in 2025, some wealth management staff and sales agents might take advantage of buyers as the last savings policies remain on the market. Consumers tend to focus on the short term, rushing in to buy goods because of their rarity, or for psychological factors, while ignoring their true needs.
If the commission does not closely monitor the sale of savings policies with high guaranteed returns by banks and life insurance companies ahead of the launching of stricter regulations later this year, policy sales might run counter to the commission’s plan for an increase in protection policies. A run on savings policies might also result in more consumer disputes.
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