ESG and Taiwan’s insurance market

Earlier opinion pieces have focused primarily on ESG and Taiwan’s financial sector and listed companies with ESG related reporting requirements.

I also noted some of the issues facing ESG in the global arena, such as a limited data pool, the lack of a single regulatory framework, disparity in terminology and definitions and even the suggestions of “greenwashing” of public reports. All these issues need further discussion.

I would like to focus on another key “industry” in Taiwan, that is, the insurance market. For a country with a population of some 24 million, Taiwan’s insurance market is extremely large and active. Again, the principal regulator is the Financial Services Commission, although in this case it is the Insurance Bureau that supervises the industry.

At this stage it would also be useful to introduce the Taiwan Insurance Institute (TII). It was established in 1985 under the auspices of the Insurance Bureau of the FSC to promote the healthy development of the insurance industry and is doing its best to achieve those aims despite COVID and other challenges.

TII has continued to actively promote its credentials as the insurance industry’s professional think-tank as well as the regional insurance training center in Asia. We will comment on some of TII’s current principal tasks a bit later.

Let’s put the size of Taiwan’s insurance market into perspective. In 2021, the non-life insurance companies in Taiwan reported a total of NT$207.4 billion in gross written premiums, up by NT$19.3 billion or 10.3% year over year, mainly due to the premium income growth from miscellaneous lines of business.

As of August, this year, Taiwan hosts –

  • 22 domestic and international life insurers
  • 19 domestic and international non-life insurers
  • 3 domestic and international re-insurers
  • A total of some 44 market players

Again, as of end of 2021, Taiwan is ranked on a global level –

  • #11 in the global insurance market
  • #13 in global insurance density
  • And a staggering #3 position in global insurance penetration

(Source – Swiss Re – via TII)

With such numbers and the importance of the insurance market to the Taiwan economy and to Taiwanese investors it was no surprise that in November 2021 the FSC published “Guidelines on Climate-related Financial Disclosures of Insurance Companies” (the Guidelines) for Insurers. The Guidelines are in line with the Taiwan government’s dedication to the promotion of the core strategies for the development of sustainable finance in the “Green Finance Action Plan 2.0”.

The Guidelines have not simply appeared out of thin air. In developing the Guidelines, the FSC referenced the “Recommendations of the Task Force on Climate-related Financial Disclosures” published by the Task Force on Climate-related Financial Disclosures (TCFD) of the Financial Stability Board (FSB).

The FSB created the TCFD to develop recommendations on the types of information that companies should disclose to support investors, lenders, and insurance underwriters in appropriately assessing and pricing a specific set of risks. These are risks related to climate change, guidelines and regulations of financial supervisory authorities of different countries, and actual operations of insurance companies to establish the Guidelines.

The Guidelines are expected to be implemented starting from 2022 and insurance companies are required to disclose climate-related financial information for the previous year before the end of June each year starting from 2023.

The FSC stated that the Guidelines require insurance companies to –

  • Establish appropriate mechanisms for climate-related risk management and opportunities based on the scale and nature of their business activities
  • Disclose information on climate-related risk management in terms of governance, strategies, risk management, and metrics and targets
  • Establish relevant internal regulations and mechanisms, and regularly review them to ensure that they comply with the requirements in the Guidelines.

I don’t think there is anything surprising in these ESG-related requirements. They align with my previous pieces, especially in relation to ESG Governance.

The FSC does recognize that the integration of the climate-related financial information disclosure framework and standardized indicators must be established gradually.

While insurance companies are required to disclose information regularly at the beginning of the implementation of the Guidelines and to adopt a gradual approach to the contents of disclosures, the FSC has agreed to provide flexibility for insurance companies to explain matters that cannot be disclosed or cannot be disclosed in detail. The FSC has also indicated that it will guide insurance companies to increase the amount of information in their disclosures and strengthen the qualitative or quantitative contents of their disclosures each year.

Additionally, given the close links between insurance companies and financial institutions, it is recognized by the FSC that financial institutions usually manage climate-related risks and opportunities at a group level. Hence, subsidiaries of domestic financial holding companies or insurance companies may disclose the related information to their parent companies.

Though this may somewhat reduce the reporting burden, the insurance companies are still “on the hook” for their ESG-related activities.

Evidencing the FSC’s commitment to the Guidelines, the FSC has requested the Life Insurance Association of the Republic of China and the Non-Life Insurance Association of the Republic of China to form a project team, in response to the needs of the insurance companies.

It is envisaged the team will draw up the manual for climate-related financial disclosure to help insurance companies successfully process related disclosures. Sustainable finance is the core of financial development policies.

In this regard, I have no doubt that TII will be asked to play a coordination role. In fact, in its August 2022 report, TII cites as part of its principal tasks for 2022 onwards “the cultivation of insurance professionals and international talent, boosting green/ESG/cybersecurity/vulnerable consumer protection capacity building and continuing to work with insurance organizations in Asia Pacific."

The FSC definitely sees the Guidelines as an opportunity to enhance the quality and transparency of ESG information disclosed by insurance companies and to strengthen the disclosure of climate-related information.

The Guidelines will also encourage the insurance industry to self-examine its own risks and capabilities in response to climate change, enhance operational resilience, and leverage the guidance of financial market mechanisms. This is to fulfill the roles and functions of the financial system for promoting sustainable development of society as a whole — another clear link to Taiwan’s 2050 Net-Zero Pathway aspirations.

As I noted at the start of this opinion piece, the ESG world continues to come under some extensive scrutiny. Regardless of some of the international “noise,” Taiwan, at least, sees positive benefits in ESG. Should change be needed in the approach to ESG, I have no doubt that Taiwan will carefully evaluate and implement those changes provided there is a benefit to Taiwan.

Read more: Member Insight | ESG and the need for data'One solution fits all’ package for ESG doesn’t existThe basics of 'environmental' in Taiwan's ESGBusting the myths of 'social' in ESG

Our member, Paul Shelton has a 30-year history in banking, working as head of Legal & Compliance and MLRO for the Asia Pacific branches of major international financial institutions in Japan, Singapore, Australia, and Hong Kong. He is also experienced in working with financial regulators across the Asia Pacific and provides consultancy services to Taiwanese financial and non-financial industry associations in all aspects of Compliance, AML/Sanctions, and Governance. He resides in Taipei.