Despite its late start in developing the business,
Taiwan is the world's fourteenth largest life
insurance market in terms of premium volume.
Yet the average indemnification per policy may
be insufficient even to cover funeral expenses.
Relying on life insurance to protect loved ones in the event of one's premature death is a long-accepted practice in Western countries, but it is a concept that has begun to take root in Taiwan only in recent decades. A look at the history of the industry shows how gradually the market has matured.
The life insurance business was introduced to Taiwan in 1918 when the island was under Japanese occupation. In the following decades, more than thirty Japanese life insurance companies set up branch offices to provide services to both the Japanese in Taiwan and the local people. When Taiwan was returned to Chinese rule in 1945, the Taiwan Provincial Government organized a committee to assume responsibility for the insurance contracts that had been signed between Japanese companies and Taiwanese residents. Two years later, that role was shifted to the newly established Taiwan Life Insurance Co., formed by the provincial government with capital pooled from banks and other agencies under its control (and run as a government-owned institution until its privatization in 1998). Also in 1947, the Central Trust of China created a Taiwan branch office to offer life, non-life, and reinsurance services.
The primary goal of the two government-run companies was to provide group insurance services to government employees, the armed forces, students, and laborers, with special coverage for workers in high-risk occupations such as mining. Although the companies also accepted applications from individuals, few people showed interest. As of 1960, fewer than 30,000 policies were in effect in a population of 10.8 million people, and premium volume came to a mere NT$43 million (US$1.1 million). "The insurance industry always develops with the growth of the economy as a whole," says Ted Liang, manager of the research department at the Insurance Institute of the Republic of China, a private organization providing research, training, and statistical information services for the insurance industry. "Only when people no longer have to worry about their daily necessities do they think of buying--and can afford to buy--some insurance."
In view of the small market, the Ministry of Finance declined to license any additional companies, but it changed its policy in 1962 when the economy was entering a period of rapid economic growth. Within two years, seven private life insurance companies were granted licenses before the moratorium on new applications was reinstated. The newly established local companies, adopting the Japanese marketing strategy, primarily used middle-aged female sales agents. This "mother troop" orientation was largely aimed at selling through personal relations, notes Lin Li-chu, an associate professor in Tamkang University's Department of Insurance, rather than ensuring that well-trained agents were providing professional advice to prospects. "There's nothing wrong in itself with doing human-relations-based business, since people want to see that their friends and relatives are adequately insured," she says. "But disputes may occur later if the agents don't understand the product properly or if they fail to tell the clients clearly about both parties' rights and obligations."
Although agents' professionalism and consumers' awareness have been increasing in recent years, personal relations still play a major role in the insurance business. Insurance companies usually encourage new sales representatives to contact their friends and relatives first. "The responsibility of an agent is to provide information on why the prospect needs insurance and to analyze what kind of policy is best for his requirements, which means they need to sit down together for a discussion," says Wang Ling-lu, who joined the Taiwan branch of the Aetna Life Insurance Company of America as an agent eight years ago and is now a district manager. "Starting with people the new agent is familiar with minimizes the chance of being shut out even before he can open his mouth. That means a better chance of closing a deal, and thus an opportunity for the rookie agent to build up some confidence."
Personal relations alone, however, will not be enough to draw many clients in a market where most potential consumers have little knowledge about life insurance and may feel uncomfortable about making an investment in which the benefits are collected only upon death. To cope with that mindset, Taiwan's insurance companies devised short-term "survival" policies that turn the conventional philosophy of life insurance on its head. Under this arrangement, if the insured survive for a set period of time--usually three to six years--they are paid an agreed amount of "indemnification," but they receive nothing if they die before that period had ended.
The public's attitude toward life insurance has steadily matured as the country's wealth has increased. In the early 1970s, "life-and-death" policies became the mainstream product in the market. In this type of policy, the beneficiaries are indemnified if the insured dies, or the insured himself can get back the premium paid in, plus some bonus, if he survives for an agreed period of time. For both the "survival" and "life-and-death" policies, the key marketing strategy is to combine life insurance with savings, but since the insured can recover the premium payments, the actual insurance value is much smaller than with pure life insurance. According to Lin Li-chu, more than 90 percent of the business as of the mid-1980s consisted of savings-linked policies.
Nowadays, although savings-linked policies are still popular in rural areas and among older people, more and more urban dwellers and younger consumers have separated their savings and insurance plans. A major factor in bringing about the change has been the entry of foreign life insurance companies into the market. In 1987, Aetna became the first foreign operator in Taiwan, and additional companies--both from the United States and other countries--followed suit in setting up branch offices in the ensuing years.
Different companies have utilized differing strategies in approaching the Taiwanese market. Aetna, for example, has sought to expand business aggressively by recruiting a large number of agents to cultivate clients from all walks of life. With more than 20,000 staffers, it was already the largest foreign operator in the country even before its merger last year with the Life Insurance Company of Georgia, part of the ING Group. Pruco Life Insurance, the Taiwan branch of the New-Jersey-based Prudential Financial, has been taking a different tack since its establishment in 1990. It maintains a staff of only a few hundred agents, and targets top-of-the-pyramid clients such as corporate executives.
Whatever their marketing strategies, the foreign companies introduced concepts that were new to Taiwan, such as different premium rates for male and female applicants as well as ten-day "reserve rights" for consumers, a period in which applicants may cancel the contract without penalty. "The biggest impact was their emphasis on insurance itself rather than mixing it with savings," Lin Li-chu says. "It stimulated the market by giving both local companies and consumers a healthier notion of how life insurance should work." Statistics from the Life Insurance Association of the Republic of China (LIAROC) show that the market share for non-savings-linked policies has grown from less than 10 percent in the mid-1980s to 54 percent in 2001.
Responding to the increasing market demand for insurance services, the government again lifted the ban on new domestic companies in 1993, making Taiwan a fully liberalized market. According to the LIAROC, eighteen domestic companies and nine branch offices of foreign companies are now in operation, with total assets of NT$2.5 trillion (US$71.4 billion) and about 260,000 employees. The domestic companies still dominate the market, accounting for more than 87 percent of the business. Between 1996 and 2000, the total amount of premium income in the industry grew by 12 to 18 percent a year, and the number of effective policies increased from 0.7 to 1.2 per person. (Corresponding figures for Japan and the United States are 6 and 1.5 policies per person respectively, but comparisons can be misleading since the basis of calculation may differ, for example as to whether annuities and health insurance are counted.) According to a survey of the 2000 global insurance business published by Swiss Re[insurance] Economic Research & Consulting, Taiwan ranked fourteenth in the world in terms of premium volume, thirteenth in insurance penetration (premiums as a percentage of gross domestic product or GDP), and nineteenth in insurance density (premiums per capita). Those rankings compare with Taiwan's position as the world's sixteenth largest economy based on size of GDP.
As the industry has developed, a greater diversity of products has become available. Companies now offer at least twenty and in some cases more than a hundred different kinds of policies--from the savings-linked types to the latest investment-linked ones--depending on individual needs. Marketing techniques have also advanced. Some companies, for example, cooperate with credit card issuers to sell their products, granting cardholders a discount on the premium. Another commonly used approach is to combine insurance sales with the provision of financial planning advice. William Chao, an agent with Aetna, points out that although life insurance should be included in everyone's financial planning, it is often ignored as it is usually the least favorite thing to plan for. "If I were to start a presentation with the importance of insurance and the quality of our products, most people would probably kick me out in two minutes," he says. "There's greater acceptance when I'm providing overall financial planning suggestions and explain why life insurance should be included. Details of the policies can wait until later."
Although the market seems well developed in terms of the number of policies per capita and the strength of the competition, from the perspective of the original purpose of life insurance--protecting the family in case of the premature death of the insured--the industry in Taiwan would still seem to have considerable potential for growth. According to Ted Liang, the average death benefit paid in 2000 was NT$466,000 (US$13,314)--a little more than the average per capita income that year. "Many people buy insurance without calculating the financial consequences of premature death, such as how to repay housing loans or finance the children's education," he says. "Those consequences vary for different people, of course, but by any standard, less than NT$500,000 (US$14,286) probably isn't enough even for a decent funeral, let alone providing any protection to the family."
In addition to insufficient protection, another problem consumers may face is refusal by the insurer to pay a claim. Such cases usually hinge on the company's argument that the insured failed to provide full or accurate information about his or her physical condition at the time of application. Lin Li-chu, who besides her professorship is also a member of the Consumer Foundation's insurance committee, notes that over a hundred different diseases or symptoms are mentioned on a typical application form--many of them beyond the scope of knowledge of the average consumer. "It's the agent's responsibility to explain things to the applicants, but some agents just fill out the form themselves, ask the applicants to sign, close the deal, and get the commission," she says. "When disputes occur, it becomes the agent's words against the client's, and it's usually not so easy to prove that the agent's to blame." But such conflicts are relatively rare. "Insurance companies don't want this kind of trouble because it's bad for their reputations," says Lin. According to the Insurance Institute of the Republic of China, which acts as the arbitrator when the two parties involved are unable to resolve the matter themselves, it receives about 600 cases a year compared with the more than two million claims paid without problem.
Fear of an unpleasant experience with irresponsible agents is only one of the reasons why people may refrain from buying life insurance. According to a market survey by Risk Management & Insurance Magazine , a Chinese-language monthly published since 1989, some other reasons frequently cited for not owning life insurance include "no budget," "no need," "no suitable product," and "no ideal company." "People's appreciation of the value of insurance rises when a major tragedy occurs--an air crash or a fire, for example--but then they seem to forget rapidly, so sometimes we need to push them a little," Wang Ling-lu says. "Life is priceless, but living, after all, costs money."