Taiwan's life insurance market – Better life for longer

By Angela Lau, Director, Head of Solutions Groups, L&H China, Swiss Re Asia

Positive life premium growth trend continues

Taiwan, the fourth-largest life insurance market in Asia with the highest life insurance penetration in the world[1], continues to see positive momentum in life premium growth. Taiwan's life and health insurance sector expanded by a healthy 5.6% in 2015, with premium income reaching TWD 2.93 trillion. 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.

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 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.

Meanwhile, low interest rates continue to give Taiwan's life insurers a major headache. The lingering issue of negative interest rate spreads, due to a combination of legacy high-guaranteed-rate policies and low prevailing interest rates, remains unresolved. Nevertheless, the steady inflow of new business written at lower guaranteed rates has helped dilute the problem of negative spreads. Life insurers' profits remained solid in 2015, partly supported by decreasing operational expenses. Sector net income after tax stood at TWD 117.52 billion, compared with TWD 102.44 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 USD 177 billion in total and USD 30 762 per working person as of 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.

Consumers increasingly seek innovative insurance solutions to protect against unfavourable life events and income protection products that can afford them benefits over a longer period of time. This partly underpins the strong, though volatile, growth of individual annuity business in recent years. Furthermore, the rising elderly population calls for innovative solutions in healthcare and long-term care (LTC).

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.[2] The study sought to answer questions such as: While many are aware of the need to prepare for their own and their family's future care needs, how well prepared are they? What are the drivers and barriers to taking action? What sort of care products and services appeal to them?

The results are a clear "call to action". 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.

Figure 1: Consumer perception of degree of, and importance of preparedness for future care needs by Taiwan respondents

Source: Spotlight on Care Solutions in Asia, Swiss Re, 2015

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. Often the trigger to take action is when they experience health issues, such as when they are no longer able to perform basic daily tasks, when mobility is impaired or when a disease is diagnosed.

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 or 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.

Figure 2: Importance of individual value added services, net top three ranking

Source: Spotlight on Care Solutions in Asia, Swiss Re, 2015

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.

[1] Swiss Re, sigma No 04/2015
[2] Spotlight on Care Solutions in Asia, Swiss Re, October 2015


Published August 2016

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