Challenges navigating Taiwan’s emerging insurtech sector

The rise of new technologies and increasing demand for innovative products have provided the groundwork for the island’s insurtech sector to grow – and the regulator is catching up

Driven by innovation through technologies, the value chain of Taiwan’s financial sector has changed significantly in recent years, and the insurance sector is no exception to this transformative impact. Following the flourishing development of fintech, insurtech is still seen as a blue ocean.

Back in 2020, insurtech was still mainly applied within insurance enterprises to improve operational efficiency. Now, inspired by the lockdown during the pandemic, not only has consumer behaviour changed but the focus of insurtech development has also shifted to providing value-add services to clients, as well as risk identification and mitigation measures.

NEO INSURANCE

Following the issuance of the very first three digital-only banking licences in 2019, the Financial Supervisory Commission (FSC) of Taiwan has further announced a new regulatory regime for digital-only insurance in response to the digitalisation of financial services, while promoting research and development of innovative insurance products that can meet the diverse needs of consumers.

Industry players were officially permitted to apply for “neo insurance” business in 2022, with the first application period from 1 August to 1 October. To date, the FSC has not yet announced its decision on the applications for establishment. While it is hoped that introduction of the regulation will allow new players into the market, there are a series of requirements to which they must adhere.

For instance, in terms of an applicant’s qualifications, promoters of the digital-only insurance company must include at least one entity from the finance industry – namely an insurance company or financial holding company with an insurance subsidiary – and another from the fintech sector engaging in big data analysis, interface design, software development, internet of things and wireless communication business.

The applicant should also provide a track record for the proposed business model, and more than half of the directors of a digital-only insurance company should have professional expertise and qualifications in the insurance or fintech industry. Specifically, at least two-thirds of the qualified directors must have professional qualifications in the insurance industry, and at least one of the directors must have qualifications in the fintech industry, and considerable practical experience.

Digital-only non-life insurance companies can only sell “innovative insurance products”, such as small units of insurance products that cut the insured amount, type of risk insured or period of insurance into small units. However, the innovativeness is subject to the FSC’s review, which has left many unsure of what products can be designed to differentiate from those existing products sold by traditional insurance firms.

For digital-only life insurance companies, only protection-type insurance products can be sold, i.e. products that do not include survival or maturity benefit designs, and whose insurance premiums are used only for insurance protection. As protection-type insurance products are generally considered less profitable in the local market, such a limitation has also left many debating whether the shift to digital-only business will be sustainable.

CAPITAL REQUIREMENTS

In terms of capital requirements, the amount of paid-in capital for digital-only insurers stands at a minimum of NTD1 billion (USD32.5 million) for non-life insurers and NTD2 billion for life insurers. The capital must only be provided by promoters and no capital may be raised via a public offering.

Digital-only insurance companies cannot have branch offices or insurance solicitors. Although the capital requirement is lower than establishing a traditional insurance company – since many operational costs incurred by traditional insurers may be saved by the virtual operation – there is, however, an expectation that a digital-only insurer is still required to invest considerably in developing new technology, and to establish internal systems and procedures for handling business solicitations.

INSURTECH ECOSYSTEM

With the aid of technology, we have seen insurance companies collaborate with partners from different industries to offer customers more than just insurance. User-based insurance (UBI) is an example. Currently, there is UBI car insurance offered in Taiwan leveraging an in-car device and application that can collect data such as mileage, driving hours and driving habits, as a base to customise car insurance premiums and discounts accordingly.

However, UBI car insurance in Taiwan still faces the challenge of insufficient incentives for the public to use it. The main reason is believed to be that the premium of traditional car insurance is generally considered relatively low, which makes UBI car insurance’s appeal of accurate pricing based on good driving behaviour little incentive for the public to buy it.

Looking forward, if vehicle-to-everything technology that enables vehicles to communicate with other vehicles, pedestrians and other infrastructure can be widely applied to provide services such as detecting the operational condition of engines and other parts of the car to minimise accident risk, the UBI car insurance market can be expected to grow further.

Health spillover insurance is another example. With the rise of public awareness of healthcare, health spillover insurance, which provides discounts in premiums as an incentive for the insured to actively manage their health, has become popular in Taiwan. In addition to asking the insured to voluntarily provide periodical health exam reports, some insurance companies have further developed health management applications, which collect users’ bio data and track their health maintenance habits in respect of exercise, eating and sleep.

SMALL UNIT INSURANCE

Big data and the internet make customisation of insurance products possible. With the ability of data collection and analysation, insurance companies in Taiwan are able to provide on-demand and object-specific products such as micro insurance and small-unit insurance. The purchase of insurance becomes personalised and real-time. More innovative use of communication and information technology will shape the future of inclusive insurance.

REMOTE INSURANCE BUSINESS

Under current regulation, as there are limited types of insurance products that can be sold purely online, remote insurance business is a new method of providing services to clients applicable to all insurance products.

In 2021, to accommodate the need for contactless financial services in the pandemic, the FSC allowed insurance companies to provide remote services, foregoing the longstanding requirement that insurance solicitors must meet with the applicant and insured in person, obtaining their wet-ink signatures on application-related documents. While the pandemic is subsiding, the number of new contracts signed via remote insurance application submission continues to rise. This indicates that in the post-pandemic era, the public is still in favour of contactless remote services.

Remote insurance business relies on, among others, a user-friendly interface, efficient face recognition or other identification verification technology, smooth connection, and profound cybersecurity measures. Today, these technologies have been well-developed and can provide remote insurance business with required infrastructure.

While this lifts geographical limits, saves tremendous time for travelling and reaches a wider pool of clients, many insurance solicitors doubt that their value conveyed through in-person meetings will be replaced. However, since the younger generation seems to prefer remote communications to in-person meetings, the authors envisage that remote insurance businesses could still become a critical way of providing services.

BLOCKCHAIN INSURANCE

Fraud, inefficiency, human error and, the most concerning of all, cyberattacks, are problematic challenges that insurance companies face every day. With blockchain technology, insurance companies can, by themselves or with the assistance of third-party service providers, create smart contracts to track insurance claims, automate traditional paperwork processes and safeguard sensitive information. Blockchain technology has even opened the door to sharing data among insurance companies.

Starting in 2020, led by the Life Insurance Association of Taiwan, a blockchain-based insurance technology application sharing platform has been established. This platform has enabled a number of services including: paperless insurance policies that reduce carbon footprints; one-stop online claims that enable the insured to apply for claims with different insurance companies through a single platform; certification and evidence preservation for online policies that reduce potential disputes between the insured and insurance companies; and passbooks that make it convenient for the insured to look up their coverage provided across insurance companies, saving storage of paper contracts.

LOOKING AHEAD

According to news reports, Taiwan’s insurance penetration rate ranks in the top three globally, and expenditure on information technology systems by traditional insurance companies is considerably high. Under the wave of insurtech, the demand for integrated data collection, artificial intelligence and cybersecurity will only grow faster.

While worldwide development of insurtech has experienced rapid growth in past decades, there is much to be discovered and developed in Taiwan’s insurance market. It is expected that investment in insurtech will keep growing in coming years.

LEE AND LI
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Taipei – 11072, Taiwan
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Email: attorneys@leeandli.com

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