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Industry Focus: Stormy Weather

--- A Survey of the Insurance Sector

 

By Susan fang

The Good News and the Bad News


Insurers in Taiwan are trying to make the best of an adverse environment brought on by both global and domestic economic hardships.

Taiwan's insurance industry is going through a particularly challenging period. With the worldwide economy depressed, global reinsurance capacity shrinking, domestic equity and property markets sluggish, and interest rates continuously declining, business has certainly been tough for most insurers in Taiwan.

Despite the adverse business environment, however, both the life and non-life insurance sectors still managed to chalk up a bit of growth in 2002. According to the Insurance Institute of the Republic of China (IIROC), the amount of premiums written by the non-life insurance industry totaled NT$50.7 billion (US$1.5 billion) in the first half of 2002, marking a 8.23% increase from the NT$46.8 billion (US$1.4 billion) of the same period in 2001. All business categories except automobile insurance saw growth in premium income. The Non-life Insurance Association of the Republic of China (NLIAROC) estimates that overall premium income in 2002 will exceed NT$100 billion (US$2.9 billion), for growth of at least 10%.

Such performance was hardly enough to cause members of the industry to break out the champagne bottles. "It's taken the [non-life insurance] industry over 40 years to break the hundred-billion-dollar threshold," said Frank Wang, NLIAROC chairman and president of Union Insurance Co., a major non-life insurer. "Taiwan's market size is simply too small to achieve major revenue breakthroughs, so any market growth will offer little significance to individual insurers."

Still, modest growth is a lot better than ending the year in red ink. IIROC research department manager Ted Liang notes that one factor contributing to this growth was probably the change in regulations allowing non-life insurers to sell personal accident (PA) policies for the first time. Previously, PA was available as a supplement to life insurance policies only, but since late 2001, non-life insurers have been authorized to sell it as an autonomous policy. While PA insurance added just slightly over NT$1 billion (US$28.9 million) to non-insurers' total premium income in 2001, Liang estimates that for 2002 the figure jumped 10-fold to NT$10 billion (US$289 million).

In terms of individual company performance, Fubon Insurance Co., having generated over NT$10 billion in premium revenue in the first half of 2002, is still the industry leader with a market share of 20%. Among foreign insurers, AIU came out on top with NT$921 million (US$26.6 million) in premium revenue in the first half, while Insurance Company of North America (part of the ACE Group) was second with NT$330 million (US$9.5 million). Compared with a total of NT$49 billion (US$1.4 billion) in premium revenue generated by domestic insurers, foreign insurers accounted for only NT$1 billion (US$28.9 million) for a market share of just 2%.

As for the life insurance industry, statistics from the Life Insurance Association of the Republic of China (LIAROC) showed that from January to September 2002, overall premium income totaled NT$504.1 billion (US$14.6 billion) for year-on-year growth of almost 20%. Despite such healthy growth in premium income, the average insured amount per individual -- that is, the money that can be claimed as a death benefit -- actually fell during that period. Compared to the same period of 2001, the average insured amount per individual dropped on new business by 7% to NT$596,000 (US$17,225) and for all business in force by 0.7% to reach NT$807,000 (US$23,327).

To LIAROC secretary general T. N. Horng, the diminished amount of insurance per policyholder is no surprise. "For most people in Taiwan, the concept of life insurance is still very much about getting a better investment return, rather than providing a safety net against unexpected misfortunes," he explained. In fact, one of the most popular products sold in 2002 was single-premium savings insurance, in which consumers pay a lump sum in advance and may expect full repayment plus interest after six to ten years. Since most such policies offer no more than NT$1 million (US$28,900) in life insurance coverage, Horng said it is no wonder that the amount of insurance protection has fallen.

But some insurers believe this low amount of insurance protection may not really be bad news after all. As Prudential Life Assurance general manager Dan Ting points out, in a more mature life insurance market like the U.S., the average amount of insurance protection per individual is around US$50,000, implying that there should still be plenty of room for growth for life insurers in Taiwan. His optimism is supported by concrete data. A decade ago, he recalls, the penetration rate of life insurance in Taiwan was still in the range of 40% to 50%, but today the level has risen to over 135% -- meaning that each person in Taiwan now owns an average of 1.35 life insurance policies. The number is believed to be still increasing. "Awareness of the importance of life insurance is definitely on the rise in Taiwan," stressed Ting.



The Move Toward Gradual Deregulation

The Ministry of Finance has liberalized certain regulations regarding premium rates, disaster coverage, and reinsurance.

In an attempt to inject more vitality into the domestic insurance industry, the Ministry of Finance (MOF), the regulatory body for insurers in Taiwan, in the past year has amended the Insurance Law and called for greater market deregulation in line with international trends. The aim is to offer better grounds for survival for all insurers.

For the non-life insurance industry, the first measure taken by the MOF in 2002 was to initiate a premium rate liberalization program. The program, which went into effect on April 1, allows insurers to set their own premium rates for certain types of insurance (including fire insurance policies sold to multinational corporations), as long as their calculated risk premiums do not fall below a minimum prescribed tariff.

Commissioner Mark Wei of the ministry's Department of Insurance (DOI), a strong advocate of the program, describes it as "a measure to prevent certain insurers from selling policies at unreasonable discounts." Most non-life insurers have regarded the step as a welcome move. "It's one of the best government policies we've seen in ages," said Sung An-ho, president of Asia Insurance Co. "Now all insurers in Taiwan can squarely compete without being forced into a ridiculous price war." Through the new program, both the government and non-life insurers hope to establish a more flexible yet regulated product pricing structure, which can be used to set the basic rules of the game within free market competition.

The liberalization program will be carried out in three phases, with each phase lasting three years. In the first phase, the MOF has relaxed the rules governing the loading of most insurance products. Excluded were types of insurance decreed by government policy, such as residential fire and earthquake insurance and automobile liability insurance. Insurers, however, are allowed to set premium rates for fire insurance policies if they are of large face value or are sold to multinational corporations. In the second and third phases, insurers will gradually be allowed to set their own premium rates on the types of insurance not covered in phase one.

The MOF's second major action was to make earthquake coverage mandatory for house owners buying residential fire insurance. Since the new measure was introduced on April 1 -- coincidentally just one day after Taiwan was shaken by a powerful earthquake -- the requirement was greeted with a positive response from house owners nationwide.

Statistics from NLIAROC show that almost 500,000 households -- 7% to 8% of total households in Taiwan -- have so far been covered under this new earthquake and fire policy. The measure was an offshoot of the MOF's disaster prevention and risk management program, initiated in 1987, which was given new impetus by the horrendous September 21, 1999 earthquake that damaged around 50,000 residential buildings. According to the government, only 1% of households was covered for earthquakes at that time.

The annual premium for the new insurance is set at a fixed rate of NT$1,459 (US$42) per household and must be renewed annually. Customers may claim up to NT$1.2 million (US$34,682) for damage to the building structure, as well as a maximum of NT$180,000 (US$5,202) for living expenses if they are forced to vacate their residence.

Additionally, the government introduced a "Taiwan Residential Earthquake Insurance Pool," aimed at providing a more substantial safety net to local residents should a catastrophe like the 1999 earthquake strike again. Participants in the pool include private domestic insurance companies, the international reinsurance industry, and the Taiwan government. Liabilities are to be distributed in four tiers, with domestic insurers covering the first NT$2 billion (US$57.8 million) of losses, the government covering any additional damages up to NT$20 billion (US$578 million), and international reinsurers picking up claims in the NT$20 billion to NT$30 billion range (US$578 million to US$867 million). A final NT$10 billion (US$289 million) will be borne by the government, bringing total coverage for Taiwan households up to an estimated NT$50 billion (US$1.4 billion).

Another change introduced by the MOF on April 1, 2002 was to permit both non-life and life insurance companies to provide financial reinsurance services. This measure will make it easier for richer companies to lend to poorer ones, a move that will mainly help new insurers in need of capital. The primary aim is "to help reduce the financial pressure faced by the weaker insurance companies," explains the DOI's Mark Wei, adding that another advantage is providing the larger insurance companies with more investment channels.

With regard to foreign reinsurance activity in Taiwan, the government has also loosened regulations to permit foreign reinsurers to establish operational branch offices. Previously, they were only allowed to set up liaison offices, which acted simply as data collection and contact centers. Companies with liaison offices in Taiwan include Swiss Re, Hannover Re, Cologne Re, Gerling-Global Re, Munich Re, RGA Re, and Toa Re.

A further recent regulatory change was a decision by the MOF to begin supervising insurance companies based on their risk rather than their business structure. The "Regulations Governing Capital Adequacy for Insurance Enterprises" was promulgated in December 2001 and is expected to come into force later this year. Aside from capital adequacy requirements, said Mark Wei, from July 1 of this year onwards, insurers will be required to take operational risks into account on top of asset, credit, underwriting, and market risks. Under the new approach, the minimum capital requirement for each insurer will be set in relation to the business segment in which it operates, which should allow more flexible financing for insurers in Taiwan. The MOF also hopes in the near future to introduce a number of sophisticated supervisory tools widely used in advanced economies -- including reserve adequacy analysis, asset liability management, solvency analysis, and dynamic financial analysis -- to increase the efficacy of the risk-based capital mechanism.



Life Insurers Contend with Negative Interest Spreads

Besides problems stemming from low interest rates, the industry is worried about proposals to make some claims payments taxable.

In the life insurance industry, a successive reduction in interest rates over the past year has increased concerns about negative interest spreads -- the gap between guaranteed interest rates on policies and actual investment returns. In hope of alleviating the problem, the Ministry of Finance (MOF) imposed a cut in the minimum required interest rate assumed on new policies from 4% to 2.5%, effective January 2003. This represents the twelfth reduction since early 2001, when interest rates were still at a level of 5.75%.

While adjusting the required interest rate was necessary to lessen the ill effects of the widening negative interest spreads, in doing so the MOF has indirectly lowered the guaranteed rates offered on life policies. "That effectively increases the cost of premiums to policyholders and dampens consumer interest in purchasing new policies," notes Chang Chung-Yuan, senior consultant to Singfor Life Insurance .

The negative-interest-spread problem is exacerbated because the Taiwan life insurers have traditionally offered products with high guaranteed rates, explains Chang, a life insurance veteran with more than 30 years in the industry. At the same time, he observes, life insurers have been relatively inflexible about making prompt adjustments in prices and asset-liability management policies during periods of prolonged low interest rates and unfavorable investment conditions. Until the late 1990s, life insurance policies sold in Taiwan carried high guaranteed rates, ranging from 6% to 10%. But under current economic conditions, Chang said it is impossible for the life insurers' returns on investment to match the high rates of return promised to policyholders.

As one solution to offset potential business losses for insurers, the MOF in late December 2002 relaxed investment restrictions, raising the ceiling on funds invested overseas from 20% to 35% of total assets. The new measure was greeted with applause from life insurers, especially Cathay Life and Shin Kong Life, both of which have already reached the previous upper limit. "Insurers can now enjoy greater flexibility in asset allocation," said C.K. Lee, vice president and spokesman of Cathay Life, "and presumably gain more profits due to the greater choice of investment opportunities." Taiwan's insurance companies have total assets of NT$3.3 trillion (US$95.4 billion), 15.2% of which, or NT$510 billion (US$14.7 billion), is currently placed in overseas investments. After the increase in investment ceiling, the government estimates, a total of NT$670 billion (US$19.4 billion) will be permitted to move out of Taiwan.

In another move welcomed by the industry, the MOF in mid-2001 allowed the introduction of investment-linked products and products with adjustable bonus rates. Ted Liang of the IIROC explains that investment-linked products offer the combined functions of protection and investment. In essence, the premiums paid by consumers are used partly to purchase protection and partly for reinvestment in mutual funds, bonds, equity stocks, and other investment instruments. In terms of risk distribution, the insurers bear the mortality and expense risks, but the investment risks are borne by policyholders. As a result, he said, the shift in insurance liabilities to policyholders means that the insurers are less affected by interest-rate fluctuations.

Although investment-linked products have been permitted since an amendment to the Insurance Law in July 2001, they did not become widespread until the following year, when the profitability of traditional life insurance policies was severely eroded by a series of downward adjustments in interest rates. As of the end of October 2002, 15 life insurers had introduced a total of 22 investment-linked products to the Taiwan market. According to statistics from the LIAROC, the premium income generated by the investment-linked product category exceeded NT$8 billion (US$231 million) in 2002.

While these regulatory changes and product innovations have positive implications for the life insurance sector, time will be needed for them to take effect, and in the meantime, the economic climate remains unfavorable. "Operating conditions for Taiwan life insurers will improve substantially only when there is an improvement in the wider economy and investment environment," says David Jou, associate professor in finance and insurance at National Taiwan University.

One possible regulatory change, however, has potential to add further pressure to the already hard-struck life insurers. The Financial Reform Committee recently proposed to the MOF that income tax be levied on payments of life insurance claims. The proposal would continue to exempt claims on National Health Insurance, accident insurance, and the mandatory labor, military, public servant, and teacher insurance programs, but would tax mortality and annuity insurance claims that exceed a certain threshold. As a principle, the Committee favors the removal of tax exemption status from insurance claims as a way to prevent the wealthy from using insurance policies for tax evasion purposes.

The life insurers are naturally aghast at the proposal and are urging the government to carefully consider the impact of the suggested changes. "As premium rates rise and the guaranteed rate of return diminishes, once the remaining benefit of tax exemption is taken away I really don't see how insurers will be able to pitch life insurance products to consumers," said LIAROC chairman Sunny Lin. Although the debate is still going on as to whether the proposal should be implemented, many believe the government will not come to any conclusion prior to the presidential election in 2004.

Some of the stronger Taiwan life insurance companies have been able to offset the effect of current adverse conditions by tightening underwriting controls as well as through effective asset-liability management. But if the phenomenon of negative spreads persists, an increasing number of players, especially the weaker companies, are likely to come under severe financial pressure as they struggle to meet maturing obligations.



The Emergence of Catastrophe Risk Securitization

Both the government and the insurance industry are eager to introduce new methods of handling risk from major natural or other disasters.

The "921" earthquake, Typhoon Nari, and destruction of the New York World Trade Center have changed attitudes toward risk in Taiwan. Not only did these natural or terrorist disasters result in costly damages, but they also caused both insurance companies and policyholders to reconsider their risk exposures. In Taiwan, individuals are buying more life and disability insurance, while businesses are looking to better protect their assets. Even more evident is that insurers are being more selective about the risks they assume.

Taiwan's non-life insurance industry has historically relied heavily on reinsurance. But after Taiwan experienced a number of serious earthquake and typhoons over the last four years, many global reinsurance companies have tagged Taiwan as a "highly dangerous" location. According to the Department of Insurance, the September 21, 1999 earthquake and Typhoon Nari in 2001 each resulted in a NT$20 billion (US$578 million) loss for foreign reinsurance companies.

As a result of a shrinking capacity in the global reinsurance market and a poor underwriting loss performance in the domestic market, the availability of reinsurance for the Taiwan market has contracted considerably in recent years. Consequently, domestic non-life insurers, especially those with a weak underwriting track record, have been paying higher premiums for reduced reinsurance cover.

In an attempt to reduce the extent of the liability borne by insurers in major disasters, the MOF is urging insurers to seek new measures to securitize catastrophic risk. Leading the way is Fubon Financial Holding Co., owner of the island's largest non-life insurer, which is planning to sell at least NT$200 million (US$5.8 million) of catastrophe bonds to foreign investors later this year to hedge itself against disasters such as earthquakes. "We're working on it both as an issuer and as an investment banker," said Fubon CFO Victor Kung. "We used to use reinsurance to divest some of our risks, but the catastrophe bond is another alternative to our reinsurance program."

The securitization process for catastrophic risk -- a rather recent innovation that has been rapidly transforming the global insurance industry -- structures risks as securities, which are then sold to investors in capital markets. The securities, referred to as "catastrophe bonds" (or "cat bonds" for short) have the potential to greatly increase the amount of capital available for catastrophic risk, as well as alter the pricing of risk.

The "cat bonds" were first created in the early 1990s after powerful Hurricane Andrew struck the southern United States. Normally used to transfer risk related to natural disasters, the bonds are also one way in which global insurers are responding to soaring reinsurance costs since the 9-11 terrorist attacks. Tseng Ching-hon, actuarial department manager of the IIROC, explains that if no disaster strikes before the catastrophe bond matures, the seller will pay the interest or principal, or both, in full to the investors. On the other hand, if a disaster takes place, the seller will reduce such payments to the investors accordingly.

"Introducing new products such as the cat bond to spread risk is a positive move for insurers," said Tseng, who has been assisting the MOF on the assessment of risk securitization for insurers. "However, some technical issues remain before they can be popularized in Taiwan." The most pertinent issues, he said, are uncertainties related to the actuarial rating structure, the high-fixed-cost entry barrier, and the need to prepare appropriate laws and regulations.

Tseng contends that the following criteria must be met before catastrophe risk securitization can be put into widespread use in Taiwan:

1. Enhanced understanding between non-life insurers and securities companies. To both local insurers and securities companies, cat bond issuance is still a new concept. Therefore, before introducing the product to the capital market, the two parties must first communicate on how catastrophe risk securitization can be employed as part of an investment portfolio. Assessments from rating companies or investment banks could be part of this process.

2. Standardization of the actuarial rating structure of risks. Even with the most advanced technology, scientists still cannot make accurate forecasts about the frequency, strength, and location of natural catastrophes such as earthquakes. As a result, the standardization of the actuarial rating structure of catastrophe risks has always been a major challenge. The United States and Japan have developed, and are constantly updating, catastrophe risk assessment models through combined research efforts by geologists, construction engineers, actuaries, and information technicians. But in Taiwan, unless such mechanisms become available, the uncertainties in catastrophe risk assessment may present a barrier to the usage of cat bonds.

3. Sufficient issuance volume to lower the fixed-cost entry barrier. In addition to support by relevant scientists, engineers, actuaries, and technicians, setting the actuarial rating structure of cat bonds also requires input from securities companies, rating companies, lawyers, and accountants. As a result, the fixed-cost entry barrier to delivering the bonds to market is higher than for most other securities products. Insurers and securities companies must be satisfied that the issuance volume will reach certain economies of scale, so that the bonds will be cost effective.

4. Accelerated amendment of laws and regulations. According to the existing investment regulations for the securities market, securities must be asset-backed and the sales of securities should be implemented through the transfer of an asset. In other words, for securities sales to take place, assets must be transferred to a special purpose trust (SPT) or a special purpose company (SPC). Since catastrophe risk is not a form of asset, however, it is unclear whether the securitization of catastrophe risks may be permitted under present regulations.



Some Foreign Insurers Say Good-bye

Heavy losses from both global and domestic disasters are among the reasons why some non-life insurance companies are retreating from the market.

After 11 years in this market, Hartford Insurance, a U.S.-based non-life insurer, ceased its Taiwan operations on September 2 last year, turning its business over to the Fubon Insurance Co. Hartford became the fourth foreign non-insurance company to exit the Taiwan market in the past decade, following U.S.-based Continental Insurance of the United States, and Guardian Insurance and Royal Sun-Alliance Insurance from Britain. Also on the way out is U.K.-based CGU International Insurance, whose application for withdrawal from the market is pending approval from the Ministry of Finance.

As foreign non-life insurers depart from Taiwan one after another, it is now debatable whether Taiwan's non-life insurance market remains favorable to multinational operators.

When foreign non-life insurers first came to Taiwan in the early 1980s, recalls Frank Wang, chairman of the NLIAROC, the domestic non-life insurance market was full of potential, expanding annually at double-digit growth rates. Since the business priority for foreign insurers was to serve the Taiwan-based branch offices or subsidiaries of their global clients, he explained, as the number of multinational corporations on the island increased, the number of foreign non-life insurers also rose. At its height that number reached 14 in the late 1990s. But such prosperity no longer prevails in today's market.

One of the main reasons why many foreign insurers are leaving, Wang speculates, is because they are reorganizing their businesses globally. After the 9-11 terrorist attack in the U.S., for example, many investment and insurance conglomerates such as the Hartford Financial Services Group were forced to reassess their global strategy due to the huge loss claims they suffered. The Hartford Financial Services Group eventually decided to retain its life insurance division as its only multinational business, closing all foreign branches of non-life insurance and reinsurance businesses, including the non-life insurance operation in Taiwan.

The IIROC's Ted Liang suggests another reason why the foreign insurance companies, which altogether have only a 2% market share in Taiwan, may be quitting the market: losses stemming from the spate of serious natural and man-made disasters on the island in recent years. On top of that, he pointed to the tumbling stock market and declining interest rates as factors that have hurt the investment returns of insurers, prompting worries over whether they have sufficient reserves to pay claims and underwrite new policies in Taiwan.

Moreover, with many multinational corporations leaving Taiwan or downsizing operations to concentrate on China, the investment environment in Taiwan has become less vibrant than before. As a result, "foreign non-life insurers that previously relied on multinational corporate accounts have found their revenue source becoming less secure," said Liang.

Compared with local players, in addition, foreign insurers often lack the necessary marketing and sales channels to fully penetrate the fire and automobile insurance business, which together make up to at least 80% of the domestic non-life insurance market.

"Insurance products may be similar worldwide, but the insurance business is definitely a localized business," stresses David Jou of National Taiwan University. He says a large local team of sales agents is the backbone for developing the insurance business in any market, and that few non-life foreign insurers in Taiwan have built up the staff necessary to secure a strong market foothold. Among the main exceptions are foreign insurers that have strong relationships with local partners. These include the AIU Insurance Co., which works in alliance with its brother-company, Nan Shan Life Insurance Co., and Zurich Insurance and Allianz Insurance, which have both built up market share by investing in local insurers.

But some believe that the Taiwan government should also be held responsible for the increasing hardship suffered by foreign insurers in the domestic market. "For years, we've been forced to survive in a messy, cut-throat price war," complained the general manager of a U.S. company, who asked to remain anonymous. He said that domestic insurance premiums were kept unreasonably low in the past because of fierce competition -- and in many cases, to boost sales, insurers ignored the safety standard for claim-payment reserves and lowered premium rates far below the prescribed minimum tariff. Although the MOF since last April has implemented a premium rate liberalization program, which clearly bans non-life insurers from lowering premium rates at the expense of safety standards, he believes the regulation has come too late to alleviate the harm caused to "companies that were playing by the rules right from the beginning."

Without the necessary operational scale to compete with local insurers, and considering the difficulty of adapting to the domestic regulatory environment, foreign non-life insurers continue to face an uphill climb in the Taiwan market. But the situation may be eased for those companies that succeed in market differentiation. As an example, IIROC's Ted Liang cites the French company Cardif Risque Divers Insurance, which in recent years has concentrated on a product that bundles unemployment insurance with life insurance. And rather than attempting to build its own sales force, it has chosen to sell through banking channels.



Survival Test for Life Insurance Agents

Being a good salesman is a lot harder than before. Agents who don't continuously upgrade their professional knowledge and skills won't last.

As life insurance companies struggle to get past the double blow of declining interest rates and policy premium hikes, the agents out in the field soliciting policies are faced with the challenge of "survival of the fittest." Since the current business climate will force life insurers to continuously readjust product lines and marketing strategies, agents who neglect to upgrade their professional knowledge and skills may find that their only option is to leave the industry altogether.

Although LIAROC records show that the total number of registered life insurance agents was on the increase over the past three years, rising from 270,000 in 2000 to 320,000 in 2002, the number of agents becoming inactive was also enlarging. According to the Taiwan branch of the Life Underwriters Association (LUA), a multinational organization representing life insurance agents, an estimated 40,000 agents were dismissed in 2002, while another 50,000 are expected to be put out of work in 2003. "The turnover among insurance agents is happening a lot more quickly," commented Eddie Tsai, an agent for ING Antai and an active member of LUA Taiwan, "especially for those who still think selling life insurance is about hitting one's network of acquaintances or that the best product to sell is none other than the savings policy."

A major cause of headaches for life insurance agents has been the series of policy premium hikes over the past two years, which resulted from the government's successive reduction in interest rates. Traditional life insurance products, such as single-premium policies and savings policies, are the most keenly affected by declining interest rates and are becoming increasingly more expensive. "Since our livelihood very much depends on sales commissions, life is getting a lot tougher for us," laments Yang Li-mei, an agent for Prudential Life Assurance.

To offset potential losses due to the effect of the declining interest rates, most insurers have introduced investment-linked insurance policies. Although the concept of treating part of the premium payment as an investment asset seems attractive and ought to be welcomed by most consumers in Taiwan, not all life insurance agents have begun to introduce this new product. LIAROC secretary-general T. N. Horng explains that in order to solicit investment-linked policies, insurance agents must first obtain a specific license to sell them. Apparently the examination for such licenses anything but easy. LIAROC statistics show that to date only around 20% of registered insurance agents have been certified.

The emergence of financial holding companies (FHC) and "banc-assurance" alliances in the past year has meant that "cross-selling" of financial products will now take place in many financial institutions. In other words, to the detriment of the interest of life insurance agents, an increasing variety of insurance policies can now be sold over the counter in most banks and securities houses, as long as the seller holds the necessary licenses. "The FHCs call it a 'one-stop-shopping' experience, whereby consumers may open bank accounts, trade securities, and buy insurance policies all under one roof," notes Fubon CFO Victor Kung. According to the latest government statistics, out of a total of 28 life insurance companies in Taiwan, 25 have now either become subsidiaries of an FHC or have agreed to sell products through a banking channel via a banc-assurance alliance. The remaining three that have chosen to stay autonomous in sales and marketing strategies are MassMutual Mercuries Life Insurance, Prudential Life Insurance, and Connecticut General Life Insurance [TBC].

But despite the convenience, not all consumers are willing to purchase insurance policies over the counter in banks. "Life insurance policies are all about my protection and future security," said one consumer, a mother of two, who has bought policies from an insurance agent and been satisfied with the service received. "How can I be assured that a banking assistant knows just as much as my personal insurance agent?" she asks. "After all, those are two different professions." In fact, it is not just consumers who are raising questions about the quality of insurance services that can be offered by banking personnel -- such voices are also being heard from the life insurance sector.

"As a professional life insurance agent, my job is more than selling policies," says Yang of Prudential Life Assurance. "I must provide sound consulting services to clients in terms of personal asset allocation. I don't do 'sell and run' business, and my relationship with clients is a long-term thing." Many life insurance companies have also taken note of this clear difference in attitudes between traditional insurance agents and personnel from other financial institutions. In a financial era when everyone can sell everything, insurers must first strengthen the professionalism of their agents if they want to differentiate themselves from competitors.

A number of life insurance companies have already taken action. First off the mark was MetLife Taiwan, which announced a program named the "West Point Training Scheme" early in 2002. MetLife will spend a total of NT$1 billion (US$28.9 million) over three years on this program, which aims to provide intensive 30-month on-the job training. Agents will gain in-depth knowledge of all life insurance products and their role in various combinations of personal financial portfolios. According to MetLife officials, the first batch of new recruits in the program has already shown significant potential. In the trial stage of October and November 2002, each agent trainee on average sold eight policies per month, far better than the normal performance of one to three sales. Moreover, the policies sold by the trainees were mainly for high insured amounts -- above the NT$2 million (US$57,800 range) -- indicating that the training is contributing to greater productivity.

Cathay Life and ING Antai have also made an effort to enhance the service quality of their agents. Cathay Life invested a total of NT$600 million (US$17.3 million) in 2002 and has to date trained some 2,500 new agents who are described as fully equipped and certified to sell life insurance, mutual funds, and trust and non-life insurance products. ING Antai will begin this year to train top-tier professional life insurance consultants, able to service corporate and VIP clients. By turning out employees who can deal directly with customers at the tip of the pyramid of consumption power, the company hopes to reinforce its foothold in the domestic market, where ING Antai already enjoys a prominent presence.

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