Can Insurers Profit From Basic Services in Taiwan?
Explore the financial viability of fundamental insurance services in Taiwan. Understand the economic factors shaping insurer profitability.
The insurance industry often appears complex, raising questions about the profitability of “basic” services. In Taiwan, understanding whether insurers profit from these offerings involves examining the regulatory landscape, the nature of insurance services, and their revenue and expense streams. This exploration provides insight into the financial mechanisms of the Taiwanese insurance market.
Regulatory Environment for Insurers
Taiwan’s insurance sector operates under the oversight of the Financial Supervisory Commission (FSC), the primary regulatory authority responsible for maintaining market stability and safeguarding consumer interests. The FSC establishes comprehensive regulations that govern the operations of insurance companies, including capital requirements, product approvals, and investment guidelines. These regulations are designed to ensure insurers maintain solvency and conduct business responsibly.
New regulatory standards, such as the International Financial Reporting Standard (IFRS 17) and the Taiwan-localized Insurance Capital Standard (TW-ICS), are set for implementation in 2026. These changes introduce mark-to-market valuation for assets and liabilities and impose stricter capital requirements, raising the confidence level for capital calibration. To meet these more stringent requirements, the FSC has introduced a 15-year phase-in period, allowing insurers time to adapt their asset allocation strategies and bolster capital reserves.
Defining Insurance Services
Insurance services in Taiwan are broadly categorized into property insurance and insurance of the person. Insurance of the person encompasses life insurance, health insurance, personal injury insurance, and annuity insurance. These categories include a range of offerings, from traditional life policies that provide death benefits to health and accident coverage.
Certain insurance types are considered “basic” due to their widespread adoption or compulsory nature. Compulsory insurance includes social insurance programs like National Health Insurance, Labor Insurance, and Farmer Health Insurance. Additionally, specific policy insurance types are mandatory, such as compulsory automobile liability insurance and residential earthquake insurance. Public liability insurance is also required for certain businesses and public venues to protect third parties.
Sources of Insurer Revenue
Insurers in Taiwan primarily generate revenue through two main avenues: premium income from policies sold and investment income derived from managing policyholders’ funds. Premium income includes first-year premiums from new policies and renewal premiums from existing ones. For instance, in the first half of 2024, Taiwan’s life insurers recorded NTD 1,134.2 billion in total premium income, with first-year premiums rising to NTD 374.8 billion.
Investment income constitutes a significant portion of an insurer’s earnings, as premiums collected are invested in various assets until claims are paid. In the first half of 2024, life insurers reported a net investment profit of NTD 701.7 billion, largely driven by dividends, realized capital gains, and foreign exchange gains. The industry’s overall pre-tax profit reached NTD 329.8 billion by October 2024, with life insurers contributing the majority.
Insurer Operational Costs
Insurance companies incur various costs in their operations, which directly affect their overall financial performance. The largest expense category is typically claims payouts, which can vary significantly depending on the type and volume of insured events. For example, in 2022, non-life insurance companies in Taiwan faced a substantial increase in claims, particularly from pandemic insurance policies, resulting in NTD 299.6 billion in total payouts. Life insurers also disburse considerable amounts in benefits, including surrender benefits, survivor benefits, and medical disbursements.
Beyond claims, insurers face significant operating expenses, which include administrative costs, sales commissions, and marketing efforts. These expenses are necessary to manage policies, process claims, and acquire new business. Regulatory compliance costs also contribute to an insurer’s financial outflow, as companies must invest in systems and processes to meet evolving standards like IFRS 17 and TW-ICS. The rise in reinsurance rates, driven by global events, can further increase operational costs for property insurers.