Steve T H Chen

1. Appreciating the Importance of “Local Customer Needs” in TheGlobalization of Insurance Market Steve T H Chen IIS Annual Meeting 2008, Taipei 1

2. Table of Contents • Why Are P&C Insurers Going Global? • Local Customer Needs —A Personal View of theEffects of Globalization on Taiwan’s P&C Insurance Market • Catering to Local Customer Needs • Automobile Insurance Claim Service • Risk Management Service • Conclusion

3. A Trend of Globalization • Over the past 20 years, the insurance industry has become increasingly global. The driving forces behind globalization vary, but broadly speaking, reasons include deregulation, following customers’ footsteps, leveraging of core skills/assets, and search for growth.

4. Deregulation Saturation or perceived lack of opportunities in home market Attractiveness of foreign markets Efficient utilization of funds Leveraging of skills The Driving Factor Behind Globalization can be Divided into Three Phases 1. Legal 2. Market 3. Operation

5. Multinational Companies’ World Class Capabilities • MNCs’ global resources and capabilities are usually regarded as their advantages. • Understanding of global market and trends • Ability to establish sales force and manage multiple channels Marketing/ Distribution • World-class underwriting and pricing engines • Comprehensive underwriting guidelines • Deep pool of experienced underwriters Underwriting • World-class loss adjusting skills • Deep pool of claims and legal talent Claims Handling Product Design/ Actuarial Services • Ability to design and offer the right products for each market • Innovation in new/emerging product designs

6. Successful Globalization Must Account for Local Customer Needs • The skills/capabilities of the foreign insurers enhance diversification in the domestic market. Internationalization also creates opportunities for the insurer to deploy excess capacity in the domestic market so as to fully utilize its underwriting capabilities. However, the standardization of policies and procedures in the process of globalization can sometimes lead to the diminished importance of “customer needs” at the local level.

7. Local Customer Needs A Personal View of theEffects of Globalization on Taiwan’s P&C Insurance Market

8. Efforts by Foreign Players to Enter Taiwan’s Market • During the 1980s, many international P&C insurers set up operations in Taiwan, but several have already chosen to exit the market due to a variety of reasons which may include the lack of competition advantages on either capital efficiency or market size.

9. Historical Performance of Foreign Insurers in Taiwan’s P&C Insurance Market Market share of Foreign Companies (By Type) 1988-2007 Number of Foreign Companies (By Type) 1988-2007 • Since the market was opened to foreign insurers in 1986, US and European insurers entered Taiwan by setting up branch offices or subsidiaries. • The number of foreign companies peaked in 1997 with 12 payers in Taiwan. • The combined market share of foreign players doing business in the form of branch offices or subsidiaries (absent local M&A) in Taiwan has never exceeded 5%. Source: Insurance Year Book 1988-2007, Taiwan Insurance Institute

10. Issues Observed • Personal observations of various reasons for the lackluster performance of foreign players in Taiwan’s P&C insurance market: • Price— • Mis-guided and often mis-led focus on price competition. • Product design— • Insurance products successful in a home market do not necessarily appeal to the new local customers. • Claim handling— • Services emphasizing a “local touch” should be integrated to develop the best practice for the local market. • Channel— • Customers expect insurers to be more accessible through convenient and diversified distribution channels. 10

11. Customers are at the Local Level • In Taiwan, leading insurers are dedicated to providing customer-focused services. Foreign insurers seeking high-performance have to strike the balance between global and local. A globalization business strategy cannot be fully implemented without considering the customer needs in the local market.

12. Case 1: Personal Line Insurance— Automobile Insurance Claim Service in Taiwan

13. Understanding Your Customer • How customers rank their priorities when choosing a P&C insurer in Taiwan. Importance (Weight %) Reasonable price Willingness to consider customer interests as first priority Fast and caring claim service Recommended by others Leading brand Responsiveness to customers Honesty and integrity Innovativeness Diligent performance of insurers’ policy obligations Customer Needs Data Source: Financial Holding Company Corporate Equity Study 2006, Survey conducted by a local market research company

14. Developing A Service Concept With Local Touch Solution With Local Touch Standardized Service Fast Responsive Caring V.S Efficient Hassle-free Worry-free, Customer comes first Satisfy customer’s basic needs Surprise – exceed expectations

15. Local Touch Services • The local solution for automobile insurance claim service has been developed due to fierce market competition. • On-site claim handling assistance. • Extended service hours on weekends. • Instant and convenient claim payment. • Text message notifications to update customers. • Professional legal and medical consultation. • Participation throughout the entire claim settlement process. Responsive Caring Worry-free

16. Case 2: Commercial Line Insurance— Fire Insurance Risk Management Service in Taiwan

17. Hi-Tech Companies Become Major Customers • From the late 1980s, manufacturers of labor-intensive products in Taiwan either moved their production abroad or shifted the production into high-end value added goods—notably hi-tech products. ％ of GDP 55 1984~ Hi-tech industry 1973~1983 Heavy chemical industry 1953~1972 Labor intensive light industry 50 1945~1952 Industrial restructuring : Power generation, fertilizer, and textile industries 40 20 0 YEAR 1953 1973 1984 Data Source: Ministry of Economic Affairs, Industrial Technology Research Institute of Taiwan

18. Any minor or single accident may cause huge loss. • The scale and severity of even a single loss can significantly impact a customer’s competitiveness. • Risk management is now a much more important issue. Features of Hi-Tech Industry Customers Implication for Insurers • Coverage: All risks + BI v.s. Fire and allied perils • Single Loss Amount: US$ 300 million v.s. US$5 million • Huge loss could undermine the financial strength of an insurer. • Providing risk management services to hi-tech industry customers became essential.

19. Following The Development of Hi-Tech Industry to Upgrade Risk Management Services • Provide customers with training courses or workshops on risk management issues to build up risk awareness. • Assist customers in implementing risk management scheme and fostering a safety culture. • Establish fire, explosion, earthquake and flood risk assessment models. • Introduce practical risk management tools. (e.g. Infrared Thermograph Service) • Provide cause of loss survey and recovery plan services when loss occurs to accommodate customer’s BCP (Business Continuity Plan). Thermograph

20. Customer Satisfaction as KPI • After developing a customer-focused service system, it is essential to track the satisfaction level to obtain a more comprehensive picture of overall business performance. According to survey results conducted by a leading P&C insurer in Taiwan, customers who have a claim experience have an average of 15% higher satisfaction level than those who do not have a claim experience. However, the key to success will be whether the services provided exceed customer’s expectations.

21. Conclusion • On a global level, the foreign players can leverage their global capabilities and standard processes to achieve significant coordination and much needed stimulation in diverse local markets. On a local level, the foreign players should consider prioritizing customer-centric service concepts and plans to enhance their market position and the likelihood of success in the local market.

22. Thanks!