The Executive Yuan today approved a draft amendment to the Insurance Act that would allow the government to take over ailing insurers as soon as their capital drops to a specific level.
The amendment, which adopts standards from international practices, was drafted by the Financial Supervisory Commission after troubled carriers Global Life Insurance Co. and Singfor Life Insurance Co. were placed under government receivership on August 12. Also, if the amendment clears the Legislature, distressed insurers would no longer be bailed out using public funds. Officials said these measures are expected to maintain the general health and stability of the insurance industry.
In addition to strengthening exit mechanisms for the industry, the draft amendment encourages insurance firms to invest in public infrastructure projects, improves the quality of appointed actuary reports, and allows banks to engage in the insurance brokerage or agency business.
Proposed changes to the act are summarized as follows:
1. A new provision allows banks to apply for permission to engage in the insurance brokerage or agency business. These banks will be subject to the Insurance Act's regulations concerning insurance brokers or agents. Regulations on related punishment and penalties will also be adjusted accordingly. (Articles 8-1, 163, 167-1, 167-3, 167-4)
2. The term "a business similar to insurance" should be deleted from the act to avoid generating the misconception that such businesses exist. (Articles 136 and 167)
3. An insurance carrier's risk-based capital ratio will serve as the competent authority's deciding factor in taking necessary supervisory action or implementing exit mechanisms. If the ratio is critically low and the firm fails to increase its capital within the time allowed, the competent authority will place the firm under receivership for a specific time period. Insurers in violation of these provisions will be subject to fines. These regulations will come into effect January 1, 2016. (Articles 143-4, 143-5, 143-6, 149, 168 and 178)
4. An insurer should employ and appoint an external actuary to review the company's operations. The qualifications of the appointed actuary and other compliance matters will be prescribed by the competent authority. (Articles 144 and 171)
5. Insurers that invest in public utilities or social welfare organizations may serve as board members or supervisors of the invested entity. (Article 146-5)
6. Administrative fines will be raised for insurers that fail to establish or enforce internal control or auditing systems. (Article 171-1)