Insurance & Reinsurance 2024 Comparisons

The legal system in Taiwan is essentially a civil law system rather than common law. The sources of insurance and reinsurance law can be roughly sub-divided into:

• the direct source of law (also known as statutory law); and
• indirect sources of law (such as past court judgments, practice, and expert theory).

The direct source of law comes from legislation such as the Insurance Act and the Regulations for Establishment and Administration of Insurance Enterprises. Moreover, in order to promote international co-operation, the Taiwan government and relevant agencies may – based on the principle of reciprocity – enter into a bilateral or multilateral co-operative treaty or agreement with a foreign government or with an international organisation. Therefore, bilateral or multilateral treaties and agreements may also be part of the direct source of insurance and reinsurance law.

In Taiwan, insurance and reinsurance activity is regulated by a government agency (the Financial Supervisory Commission, or FSC) in accordance with the Insurance Act and the relevant laws and regulations.

For insurers, both non-life insurance entities and life insurance entities are regulated by the FSC and need to comply with the basic principles of insurance and reinsurance – for example, the insurable interest principle and the utmost good faith principle. However, according to Article 138(1) of the Insurance Act, insurance entities shall not concurrently engage in both non-life insurance business and life insurance business except where a non-life insurance entity is approved by the FSC to engage in personal injury insurance and/or health insurance.

Moreover, pursuant to Article 176 and 177 of the Insurance Act, there are detailed procedures for the establishment, registration, transfer, merger, dissolution and rehabilitation of insurance entities – making the insurance and reinsurance business a highly regulated industry. And regulations governing the legal compliance of insurance solicitors (ie, representatives of the insurance entity) in insurance operations are set forth by the FSC in further detail and cover:

• obtaining solicitor qualification certificates;
• registration (including voidance or revocation of registration);
• education;
• training; and
• disciplinary matters.

Reinsurers are required to have a high autonomous management capability ‒ for example, a reinsurer must receive a credit rating above a certain level from an international credit rating agency and allocate certain special reserves. However, in practice, the actual operation of reinsurance entities is less heavily regulated once all the permits and licences for reinsurance are obtained – given that the reinsurer is the expert and more able to self-regulate.

According to Article 144 of the Insurance Act, the FSC is entitled to issue guidelines to regulate insurance and reinsurance policies as it deems necessary. As such, the FSC has issued the Regulations Governing Pre-Sale Procedures for Insurance Products, the Guidelines for the Examination of Non-Life Insurance Products, and the Guidelines for the Examination of Life Insurance Products.

Whether consumer insurance, SME insurance or corporate insurance, insurance entities are required to comply with the applicable guidelines and submit the insurance products for the FSC’s review and approval before such products can be made available to the Taiwan market. Besides, in order to ensure the soundness of the insurance market or safeguard the interests of the insured, the FSC has the authority to order the self-regulated Association of Insurers to:

• amend its constitution, by-laws, rules and resolutions; or
• provide reference materials, reports or contracts where necessary (based on Article 165(5) of the Insurance Act).

For traditional personal life insurance products, an insurance agent, broker and solicitor should provide the insured with an unlimited amount of time in which to review the insurance policy before duly signing it. (Please see Article 9 of the Regulations Governing Online Insurance Business and Online Insurance Services of Insurance Agent Companies and Insurance Broker Companies.)

As regards the solvency risk of insurers, pursuant to Article 143(4) of the Insurance Act, the capital adequacy ratio of an insurance entity must not be lower than 200%. The capital adequacy ratio is categorised into four different levels – that is, adequate capital (200% or above), inadequate capital (150%–200%), significantly inadequate capital (50%–150%) and seriously inadequate capital (lower than 50%).

Depending on the level of the capital adequacy, the FSC may take measures such as:

• ordering the insurance entity or its responsible person to propose a plan for the capital increase;
• ordering the insurance entity to cease selling insurance products or restrict its launch of new insurance products;
• restricting the scope of the capital utilisation;
• restricting the remuneration to its responsible person;
• exercising receivership over the insurance entity;
• ordering the entity to suspend and wind up the business; or
• liquidating the entity.

In principle, exemptions apply in the case of income tax on the compensation payment made for:

• life insurance;
• labour insurance; and
• insurance for public servants, military personnel and teachers.

Moreover, according to Article 17 of the Income Tax Act, the premiums paid by or for the taxpayer, their spouse or lineal dependants on life insurance, labour insurance, national pension insurance and insurance for military personnel, public servants or teachers have a deductible amount not exceeding TWD24,000 for each person per year

Should a foreign insurance or reinsurance entity seek to establish a new insurance company or reinsurance company for the purpose of doing insurance business in Taiwan, the following steps must be taken:

• apply to the Ministry of Economic Affairs (MOEA) for reservation of the new company’s Chinese name and business scope;
• to the Investment Commission (IC) for a foreign investment approval (FIA) for foreign shareholders’ equity investment in the new company (please note that this step is only required for investments funded by foreigners or foreign entities);
• apply to the FSC for a special permit to establish a new insurance company or reinsurance company in the Republic of China (ROC) (“special permit”);
• apply to the IC for verification of the new company’s capital;
• apply to the MOEA for incorporation registration;
• apply to the FSC for the issuance of a business licence;
• apply for business registration with the local tax authority;
• apply for membership of the Life Insurance Association of the Republic of China (the “Life Insurance Association”)/the Non-Life Insurance Association of the Republic of China (the “Non-Life Insurance Association”) in Taiwan; and
• apply for the issuance of a certificate to operate foreign exchange business (“FX Licence”) from the Central Bank of the Republic of China (Taiwan) (CBC) if the new company intends to sell insurance policies that are denominated in foreign currency.

In summary, a foreign insurance entity may not commence its business operation in Taiwan unless it has obtained a special permit from the FSC, completed establishment registration, posted a bond, and secured a business licence in accordance with the law (based on Article 137(1) of the Insurance Act). Doing business illegally in Taiwan may subject the responsible person at the offending insurance/reinsurance entity to criminal liability otherwise, as per Article 167 and Article 167(1) of the Insurance Act.

It usually takes between six and eight months at least to obtain a special permit and such permit is at the discretion of the authority, making difficult to comment on the chances of overseas licences being recognised, etc, given that the uncertainty thereof is so high. Moreover, there is a minimum paid-in capital requirement that the promoters (ie, the shareholders who subscribe to company shares in the initial subscription) must contribute the equivalent of at least 20% of the minimum paid-in capital at the time of registering the company’s establishment.

In addition, a bond equal to 15% of the paid-in capital should be deposited with the National Treasury. Then, within three months of registering its establishment, the insurance enterprise must submit the documents stipulated under Article 11 of the Regulations for Establishment and Administration of Insurance Enterprises and apply to the FSC for the business licence, which would usually take between one and two months.

Nevertheless, this time schedule is for reference only, and the actual time required is decided on a case-by-case basis. Furthermore, the permission of the Central Bank must be obtained first if the business involves foreign exchange business.

Foreign insurers or overseas-based insurers that have not completed the above-mentioned registration process and deposited the sum of the operating bond cannot write insurance business directly in Taiwan. However, the FSC allows foreign or overseas-based insurers or reinsurers to write reinsurance with a domestic insurer to a certain extent without punishment under Article 167 and 167(1) of the Insurance Act.

According to Article 7 of the Regulations Governing Insurance Entities Engaging in Operating Reinsurance and Other Risk Spreading Mechanisms, if an insurance entity would like to cede its insurance business then the undertaking insurance entity must be one of the following:

• an insurance entity approved by the competent authority to engage concurrently or exclusively in reinsurance business in Taiwan;
• a foreign insurance entity approved by the competent authority to engage concurrently or exclusively in reinsurance business in Taiwan;
• a foreign reinsurance or insurance organisation with a credit rating above a certain level from an international credit rating agency;
• a reinsurance organisation, insurance organisation or risk-spreading mechanism allowed to engage in reinsurance business according to the laws of Taiwan; or
• other reinsurance organisations, insurance organisations or risk-spreading mechanisms approved by the competent authority.

Such ceding insurance entity must also establish its own risk management mechanism for its ceded reinsurance business, taking its risk-bearing capacity into consideration, and draft a reinsurance risk management plan that should include:

• management guidelines for the method of cession;
• arranging cession to the reinsurer once the original insurance policy is in force; and
• choice of reinsurer, reinsurance broker and operational process for cession to the reinsurer.

Moreover, according to Article 10 of the aforementioned regulation, the reinsurance premium rates shall be adequate, reasonable, and reflect costs. If a non-life insurance entity arranges proportional reinsurance, the retention premium rate shall not be lower than the reinsurance premium rate and original premium rate. However, if a non-life insurance entity arranges non-proportional reinsurance, none of the retention-layer premium rates must be lower than the higher-layer premium rate or the weighted average reinsurance premium rate of the same layer.

When it comes to the M&A of insurance companies in Taiwan, the FSC focuses on protecting the rights of shareholders and investors, and the disclosure of relevant information.

In general, if the insurance company can meet relevant insurance regulations and be approved by the FSC, M&A activities are allowed in Taiwan. However, in order to ensure that M&A activities of life insurance companies do not interrupt the service provided to the insured, the FSC may require the life insurance company to:

• issue a statement promising that the rights and interests of the original insured will not be affected in any way; and
• take the initiative to send a letter to notify those already insured.

Moreover, according to Article 5 of the Financial Institutions Merger Act, if a property insurance company is merged with an insurance cooperative, the surviving institution or newly incorporated institution shall be the property insurance company. When insurance company are merged, it shall make a public announcement and report within two days from the occurrence of merger and make a public announcement of the content of the resolution and particulars to be stated in the merger agreement within ten days (Article 9 of the Financial Institutions Merger Act).

In practice, if the merger or acquisition is relatively complicated, the FSC may require the insurance company to ‒ inter alia ‒ provide more capital or have more of an ability to integrate the different information systems.

In Taiwan, insurance is categorised into non-life insurance and personal insurance. Non-life insurance includes fire insurance, marine insurance, land and air insurance, liability insurance, bonding insurance, and any other type of insurance approved by the competent authority. Personal insurance includes life insurance, health insurance, personal injury insurance, and annuities.

The following types of distributors are active in the market in Taiwan:

• insurance agent – a person who, on the basis of a contract of agency or a letter of authorisation, collects remuneration from an insurer and acts as a business agent on the insurer’s behalf;
• insurance broker – a person who, on the basis of the interests of the insured, negotiates an insurance contract or provides related services and collects a commission or remuneration; and
• insurance solicitor ‒ a person who acts as the individual representative of insurance entity in order to solicit insurance business on behalf of:
1. said insurance entity;
2. an insurance broker company;
3. an insurance agent company; or
4. a bank concurrently engaged in insurance agent/insurance broker business operations.

According to Article 163 of the Insurance Act, an insurance broker and agent must have obtained permission from the competent authority, posted bond and obtained related insurance, and obtained a practice licence before beginning business operations or practice. For more details on the qualifications and management of insurance brokers and agents, please refer to the Regulations Governing Insurance Brokers and Regulations Governing Insurance Agents.

If an insurance agent or broker violates laws or regulations, or is suspected of improper management, then the competent authority may ‒ depending on the circumstances ‒ take disciplinary action (such as issuing an official reprimand or ordering the agent or broker to take corrective action within a specified period of time).

If the bank wants to sell the insurance policy on the bank counter, it will need to obtain either an insurance company licence, an insurance agent licence, or an insurance broker licence. The distribution of the insurance products will depend on the nature of the particular licence.

According to Article 64 of the Insurance Act, when an insurance contract is negotiated, the proposer must respond truthfully to the written enquiries made by the insurer. Where there is concealment, non-disclosure or misrepresentation on the part of the proposer or insured in the disclosure of risk, the insurer may rescind the insurance contract within one month of becoming aware of the situation – as long as this does not occur more than two years from the date on which the insurance contract was signed.

In Taiwan, the insurer is required by the FSC to include a list of questions concerning matters that would influence the risk assessment in a proposal form for the insured to answer. The duty of disclosure in insurance law should also be guided by data protection regulations and the principle of good faith (as per the Civil Code).

Although there is no clear ruling with regard to the differences between consumer insurance and commercial insurance when it comes to the insured’s disclosure duty, in practice the court favours the consumer more in cases of consumer insurance. Therefore, in cases of commercial insurance, the insured will actually be required by the court to meet a higher standard of disclosure.

If the proposer has made any concealment, non-disclosure or misrepresentation – and such concealment, non-disclosure or misrepresentation is sufficient to alter or diminish the insurer’s estimation of the risk to be undertaken – the insurer may rescind the contract (see 6.1 Obligations of the Insured and Insurer).

In Taiwan, the “insurance intermediary” usually refers to insurance brokers and insurance agents. The insurance brokers need to clearly understand the needs of the proposer before further helping to choose the suitable insurance product for the insured to sign. In accordance with Article 33 of the Regulations Governing Insurance Brokers and Article 33 of the Regulations Governing Insurance Agents, when practising or operating business, the broker must:

• exercise due care as a good manager;
• exercise fiduciary duties in order to uphold the interests of the insured;
• ensure that they have provided professional explanations to the insured; and
• ensure that they have disclosed all information relating to:
1. the core components of the insurance product in question; and
2. the key rights and obligations of the insured.

In 2022, the FSC even amended the regulations that require insurance brokers to protect the rights of clients over the age of 65 and prohibit the sale of unsuitable insurance products to them.

Although the insurance agent is the agent of the insurer according to Article 8 of the Insurance Act, the agent is considered to act on the insurer’s behalf and thus has fiduciary duties to the insurer.

In general, the insurer provides the written enquiries to the insured or the proposer and an insurance contract is drawn up in the form of a policy or a binder (based on Article 43 of the Insurance Act). The insurance contract is normally in writing and includes the parties, insurance interest, insurance incidents, insurance period, insurance amount and insurance premium.

However, based on the past court practice, courts in Taiwan do not necessarily consider the contents of an insurance contract to be limited to written documents, as long as there is proof of mutual consent to the contents. Nonetheless, it is worth noting that a life insurance contract entered into by a third party without written consent from the insured and stipulation of the insured amount will be considered void (based on Article 105 of the Insurance Act).

Furthermore, in the reinsurance contract, the FSC have promulgated the Regulations Governing Insurance Enterprises Engaging in Operating Reinsurance and Other Risk Spreading Mechanisms and set out additional criteria (eg, applicable law and court of jurisdiction).

The proposer and the insured must have the insurance interest, otherwise the insurance contract will lose its validity as per Article 17 of the Insurance Act.

Generally speaking, there are no explicit regulations concerning the eligibility of insurance beneficiaries in Taiwan. This will depend on mutual consent from the insurance contract parties and verification by the court.

As mentioned in 6.4 Legal Requirements and Distinguishing Features of an Insurance Contract, courts in Taiwan may determine the contents of the insurance contract based on evidence other than the written contract itself. Therefore, it is possible to let the beneficiaries of the insurance contract include tenants, subcontractors and mortgagors, as long as it is possible to confirm and verify the mutual consent of the parties on such content (as well as the insurable interest) before the court.

Normally, the court will investigate the correspondence between parties and interrogate the witness (or even the expert witness). It is difficult to say what the rules are regarding the identification of beneficiaries in the contract, as this really depends on the judge in each case.

If the beneficiaries of the insurance contract include someone other than the named insured in the written contract, the court will likely take into consideration:

• whether it was ever implied that such beneficiaries were included in the insurance contract during the contract negotiation; and
• whether such failure to disclose the unnamed insured is enough to alter or diminish the insurer’s estimation of the risk to be undertaken, thereby justifying the partial or whole annulment of the insurance contract.

There are no exact guidelines concerning the difference between consumer insurance contracts and commercial insurance contracts in Taiwan. Given that the Taiwan courts are usually pro-consumer, however, it is possible that the court may make room to include unnamed beneficiaries within the scope of coverage if the insured is a consumer rather than a commercial entity.

Given that the insured in a reinsurance contract is also the insurance entity, the court tends to place more emphasis on the written documents and correspondence – as both parties are experts in insurance business and shall be prudent with regard to the written information. Alternatively, the court may engage an independent surveyor to help reach a decision on including unnamed beneficiaries within the scope of coverage because both parties are experts and will therefore usually respect the opinion provided by an independent third-party expert.

In the capital market, ART management mechanisms can be used to diversify or transfer risks to those who are more capable to bear the risk ‒ rather than concentrating on a single insurer, insurance company, reinsurance company or capital market investor. To some extent, therefore, ART transactions may function in a similar way to insurance or reinsurance.

As such, it is possible that the regulator in Taiwan may recognise ART transactions as part of insurance or reinsurance ‒ although the authors are not aware of any cases of this actually happening in Taiwan. The FSC currently prefers to encourage providing diversified financial products, responding to the needs of the market, and improving the efficiency of the traditional insurer. The FSC might supervise ART transactions in a more flexible way if it considered how they can assist the current insurance market.

As mentioned in 7.1 Art Transactions, the authors are not aware of any actual cases of ART transactions in Taiwan. In general, ART transactions written in other jurisdictions may be treated as reinsurance contracts, given their similarity to the method in which an insurer shares its insurance risk with another insurance entity.

It is worth noting that the insurance entity is normally required to undergo a solvency assessment in a timely manner, which includes:

• assessment of provisions for various kinds of reserves;
• evaluation of asset quality;
• the match of assets and liabilities;
• resolution of overdue loans and non-accrual loans;
• management of investment and fund liquidity;
• assessment of financial conditions and capital adequacy;
• insurance entity risk management; and
• self-assessment of the insurance entity’s risks and solvency.

Therefore, the authors tend to believe that the regulator in Taiwan should accept ART transactions for solvency purposes, given that they do not introduce or increase risk. Nevertheless, it is uncertain whether ART transactions written in other jurisdictions will be wholly recognised as reinsurance contracts in Taiwan, as this remains at the discretion of the FSC.

Generally speaking, insurance law in Taiwan tends to favour the insured. Article 54 of the Insurance Act provides that “the interpretation of insurance contracts shall seek the true intent of the parties and may not adhere blindly to the language employed; where there is doubt, interpretations should, in principle, be favourable to the insured”. Furthermore, according to Article 54(1), such part of the contract clause will be considered void if the insurance contract contains either:

• any term or condition that is unfavourable towards the consumers; or
• provisions that are unreasonably advantageous towards the insurance company.

In court practice, both parties to the insurance contract are allowed to provide extraneous evidence to the court in order to interpret the insurance contract. In addition, according to Article 7(2) of the Financial Consumer Protection Act, provisions under a contract entered into by a financial services enterprise and a consumer are invalid if they are clearly unfair. Therefore, where there is doubt, the interpretation should favour the financial consumer.

Hence, under most circumstances, interpretation of insurance contracts is sought based on the true intent of both parties. However, the insurance contract is usually drafted by the insurance entity and the law rules that the provisions of such contract must be interpreted in favour of the consumer where the wording is ambiguous. In order to eliminate any ambiguity, the court usually will allow the extraneous evidence in addition to the wording of the contract itself.

In Taiwan, a special provision (according to Article 66 of the Insurance Act) is one whereby parties warrant performance of a special obligation apart from the basic provisions of the insurance contract. Such special provisions are usually known as a kind of warranty even if the term “warranty” is not used. According to the Insurance Act, all matters ‒ whether past, present or future ‒ that relate to an insurance contract may be stipulated as a special provision by mutual consent of the parties; however, when a party to an insurance contract breaches such special provision, the other party may rescind the insurance contract. The same rule also applies after the risk has occurred.

In order to determine whether these clauses are warranties, the court will usually examine whether these clauses were reviewed during the negotiation procedure and take into account:

• whether the clauses were formed by the parties on an equal footing;
• the legitimate expectations of the parties; and
• the principle of good faith as well as the usual practice.

Insurers in Taiwan have the obligation of indemnification, in accordance with the insurance contract, when an insured peril occurs. The conditions precedent to the insurer’s liability is usually not imposed in favour of the insured. It is uncertain whether such a conditions precedent will be considered by the court as unfair to the insured and thus render the insurance clause null and void. Therefore, in order to reduce possible disputes, it is advisable to expressly describe any conditions precedent in the contract. Otherwise, the court might directly refuse to accept them as part of the contract without making further effort to verify whether it is unfair to the insured. According to the Civil Code, if the court considers the conditions precedent to be a valid part of the contract, the violation of said conditions precedent will entitle the insurer to refuse to perform its indemnification obligation.

Insurance coverage in Taiwan depends on the parties’ mutual consent in the insurance contract. According to the Insurance Act, where there is doubt, interpretations of the insurance contract should in principle be favourable to the insured. Therefore, when there is a dispute over coverage, the agreement should first be reviewed to see whether there is any mutual consent on the coverage or exemption. However, if the agreement is vague or not specific enough, its interpretation must favour the insured. There are no major differences in the application of these principles, regardless of whether the contract in question is a consumer insurance contract, reinsurance contract or commercial insurance contract.

In general, any right to claim arising from an insurance contract shall be extinguished if not exercised within two years of the date on which it becomes possible to exercise the right. However, if any of the following circumstances apply, the two-year time period commences as set forth in the Insurance Act.

• If there is concealment, non-disclosure or misrepresentation on the part of the proposer or insured in the disclosure of risk, the period commences from the date on which the insurer becomes aware of the situation.
• If ‒ after a risk occurs ‒ an interested party can prove that its lack of awareness was not due to negligence, the period will begin from the date on which it becomes aware of the situation.
• If the claim of a proposer or insured against an insurer arises out of the claim of a third party, the period will begin from the date on which the proposer or insured is presented with the third-party claim.

Third parties or unnamed beneficiaries are not usually contractual parties to the insurance contract and therefore are not permitted to bring a direct action against an insurer – unless the court otherwise considers that they have the rights to claim under the insurance contract. However, there is one exception to this rule: liability insurance.

Where the insured is considered liable to indemnify a third party for loss, Article 94(2) of the Insurance Act provides that the third party may claim for payment of indemnification – within the scope of the insured amount and based on the ratio to which the third party is entitled – directly from the insurer. That is to say, under the circumstances, if the insured is liable for a third party’s damages, such third party may demand the insurer provide indemnification for the damage it has suffered. However, it is worth noting that the scope of such indemnification is restricted to the sum that the insurer has agreed to undertake under the liability insurance.

Although Taiwan cannot be a member of many international conventions, owing to international political factors, its laws follow the main concepts and spirit of these international conventions. If a civil case in Taiwan involves a foreigner or a foreign country, the jurisdiction and choice of law are addressed by the Act Governing the Choice of Law in Civil Matters Involving Foreign Elements.

Generally speaking, in a civil matter involving foreign elements, the court in the domicile of the proposer (ie, the insurance policy buyer) or the insured has jurisdiction over the insurance disputes concerned. The parties may further stipulate the jurisdiction, as long as the stipulation will not be unfair to the insured.

As regards the choice of law, in general, the applicable law regarding the formation and effect of a juridical act that results in a relationship of obligation is determined by the intention of the parties. However, where the parties have no express intention or their express intention is void under the applicable law determined by them, the formation and effect of the juridical act is governed by the law that is most closely connected with the juridical act.

In principle, the parties to the insurance contract may stipulate the governing law – provided that the stipulation will not be unfair to the insured ‒ and, if there is no valid mutual agreement on the governing law, the law that is most closely connected with the insurance contract shall govern. Additionally, pursuant to Article 29 of Act Governing the Choice of Law in Civil Matters Involving Foreign Elements, an injured person’s direct claim against the insurer of the person liable for the tort is governed by the law applicable to the insurance contract. However, if it favours them, the injured person also may assert that the law applicable to the tort’s obligation shall be the governing law.

In Taiwan, there are three instances in the court system ‒ district courts, the High Court, and the Supreme Court.

In principle, the district courts are the courts of first instance. The losing party in the first instance may pay the court of appeal fee and appeal to the court of second instance if it finds the judgment unfavourable.

As per the district courts, the High Court in the second instance will review and investigate the facts as well as the legal issues. The High Court in the second instance will also allow the parties to submit new evidence and present new arguments, apart from in exceptional circumstances.

However, in the second instance, the losing party in the High Court may only appeal to the court of third instance (ie, the Supreme Court) on the grounds of a matter of law rather than a matter of fact. Furthermore, only cases with a claim amount exceeding TWD1.5 million (approximately USD50,000) can be appealed to the Supreme Court.

Compulsory enforcement can be carried out by courts in Taiwan on the grounds of an irrevocable final judgment.

According to Article 402 of the Code of Civil Procedure, a judgment rendered by a foreign court must be recognised, apart from in the following circumstances:

• where the foreign court lacks jurisdiction pursuant to ROC laws in Taiwan;
• where a default judgment is rendered against the losing defendant (except in cases where the notice or summons of the initiation of action was legally served in a reasonable time in the foreign country or served through judicial assistance provided under ROC laws in Taiwan);
• where the performance ordered by such judgment or its litigation procedure is contrary to ROC public policy or morals; or
• where there exists no mutual recognition between the foreign country and the ROC.

According to Article 4(1) of the Compulsory Enforcement Act, the holder of the judgment rendered by a foreign court must apply for the Taiwan court’s recognition and enforcement order first. Once the holder obtains the final order, the foreign court judgment will be enforced by the Taiwan court. When deciding whether to grant the recognition and enforcement order, the Taiwan court will not review the merits of the case; rather, it will only examine whether there are limited statutory defects from a procedural viewpoint.

The arbitration clause is based on the mutual consent of the parties and, according to the Arbitration Act, this must be in writing. Courts in Taiwan do not intervene the arbitration, except in exceptional statutory circumstances (eg, the application of interim relief, an application for the withdrawal of a sole arbitrator, and the arbitral award revocation procedure).

The validity of an arbitration clause forming part of a principal contract between the parties may be determined separately from the rest of the principal contract. A decision that the contract is nullified, invalid, revoked, rescinded or terminated will not, in principle, affect the validity of the arbitration clause. The courts tend to enforce foreign arbitral awards – provided that they have none of the statutory defects listed in the Arbitration Act, which is modelled on the 1985 UNCITRAL Model Law. The aforementioned principles commonly apply, regardless of whether it is a commercial insurance contract or a reinsurance contract.

An arbitral award made in Taiwan, based on the laws of Taiwan, will have the same effect as a final court judgment and can thus be enforced by the court.

Although Taiwan cannot be a member of the Convention on the Recognition and Enforcement of Foreign Arbitral Awards 1958 (the “New York Convention”), owing to international political factors, many foreign arbitral awards have been successfully enforced in Taiwan in the past. The holder of arbitral awards rendered by a foreign arbitration tribunal must apply for the Taiwan court’s recognition and enforcement order first. Once the holder obtains the final order, the foreign arbitral award will be enforced by the Taiwan court. In the process of granting the recognition and enforcement order, the Taiwan court will not review the merits of the case. It will only examine whether there are limited statutory defects from a procedural viewpoint.

The parties may choose to initiate a court mediation before or after the case is pending in Taiwan. The court mediation is conducted by a judge (ie, as a mediator); therefore, if an agreement is successfully reached, such agreement has the same legal effect as a final judgment and the parties will be bound by it. On the other hand, if no agreement can be reached through court mediation, the application for a court mediation will be deemed as the initiation of a civil lawsuit.

The Chinese Arbitration Association, Taipei (CAA) also provides a mediation mechanism. By law, a successful mediation agreement can have the same effect as a court judgment and can be enforced.

The aforementioned principles apply to consumer contracts, reinsurance contracts and commercial contracts.

Under the Insurance Act, if insurers improperly delay settling claims, for reasons attributable to themselves, they must pay default interest at a rate of 10% per annum. The Insurance Act does not rule other punitive damage.

The insurer has an automatic right of subrogation upon payment of its indemnification obligation, according to Article 53 of the Insurance Act. However, the amount of the subrogated claim that the insurer may claim must not exceed the amount of the indemnification paid to the insured.

In addition, it is also ruled that where the loss or damage is caused by a family member or employee of the insured, the insurer does not have the right of subrogation upon payment. However, if such loss or damage resulted from the wilful misconduct of said family member or employee, the aforementioned rule does not apply and thus the insurer can still claim by subrogation.

In Taiwan, many insurance companies use innovative insurtech to:

• design new insurance products and solutions;
• improve process and operational efficiency; and
• enhance the satisfaction of customer.

Blockchain, AI, and data analysis are specific ways in which insurtech is used.

The value of the insurance industry has gradually transformed along with the development of insurtech. The purpose of traditional insurance is to compensate for risks, but now insurance can aim to effectively eliminate risks.

In recent years, Taiwan’s insurance technology has become more and more digital. The government has tried to promote the “Preservation and Claims Alliance Chain” and its plan to allow online-only insurance companies to operate, meaning that AI and blockchain will be more widely used to reduce labour costs and improve operating procedures.

In response to people who needed to purchase insurance products but were unable to go out because of COVID-19, the FSC formulated the Regulations Governing Online Insurance Business and Online Insurance Services of Insurance Agent Companies and Insurance Broker Companies to provide consumers with convenient and safe insurance services that were no longer face-to-face. With the advancement of modern technology and changes in lifestyles, the FSC’s Insurance Bureau anticipated that Taiwan’s insurance industry would gradually enter the era of full digitisation in 2023.

In March 2020, the FSC approved a trial of a new blockchain insurance project called the “Preservation/Claims Alliance Chain”, which aims to bring the insurance industry in Taiwan into a digital and more convenient era. Under the project, if a person needs to change their address and has multiple policies with different insurers, they only need to update their data one time and share with other insurers. Furthermore, if a person has multiple insurance policies and makes a claim under one policy, a blockchain smart contract will instruct the other insurance companies with which they have coverage to initiate a claim.

Looking ahead, more and more digital information will be used in insurance disputes and this can be expected to impact the process of litigation, arbitration or mediation for insurance disputes in Taiwan. With more insurance companies participating in the project, it is anticipated that systems for the digital settlement of insurance claims will become more comprehensive within the next three to five years.

On 21 December 2021, the FSC announced its policy purpose and plans to allow online-only insurance companies to operate, while imposing a minimum capital requirement of TWD1 billion (approximately USD35.97 million). An online non-life insurer should be capitalised at no less than TWD1 billion, whereas an online life insurer’s minimum capital size has been set at TWD2 billion. The FSC recently also announced that an online-only insurance company will need to have financial institutions and financial technology providers as its shareholders.

Insurance is a highly regulated industry in Taiwan and a special permit is required. Entities intending to enter the insurance market in Taiwan must comply with the numerous requirements set out in the Insurance Act, as well as other related regulations.

Moreover, where foreign insurers wish to set up a subsidiary in Taiwan, an FIA from the IC is required in addition to the aforementioned requirements. In the past, the review and approval of the foreign investment ‒ along with the verification of capital injection by the IC ‒ usually only took around three weeks. However, owing to the political tension between Taiwan and the PRC, the government of Taiwan now adopts a stricter review procedure for all foreign investments in order to prevent PRC entities investing in Taiwan under the name of shell companies incorporated in other foreign countries.

The Financial Technology Development and Innovative Experimentation Act (the “Experimentation Act”), effective as of April 2018, was enacted for the purpose of creating a safe environment for experimentation involving innovative financial technologies in order to develop technology-based financial products or services.

In addition, the Insurance Act was also amended to allow the regulatory sandbox to encourage experimentation in fintech innovation. Under Article 136(1) of the Insurance Act, insurance enterprises, brokers, agents and surveyors may apply for approval to undertake innovative experimentation within the insurance business (in accordance with the Experimentation Act) for the purpose of facilitating the development of inclusive finance and financial technologies.

Moreover, the insurance industry is also adapting to the challenges arising from digital innovation and distance selling. Two examples that provide more instruction on digital selling and distance selling are:

• the Regulations Governing Online Insurance Business and Online Insurance Services of Insurance Agent Companies and Insurance Broker Companies; and
• the Directions for the Insurance Enterprises Conducting E-Commerce.

In addition, the insurance products that are denominated in TWD are categorised as “financial products or services approved by the FSC to make the payment through an agent” in accordance with the Act Governing Electronic Payment Institutions. Therefore, insurance customers can use electronic payment to pay premiums and other fees. In this respect, it is not only customers who will enjoy more convenience; the insurance industry ‒ along with “electronic payment institutions” ‒ may also benefit.

In 2022, the FSC announced that it will start accepting applications for the establishment of online-only insurance companies from 1 August 2022 to 31 October 2022. According to Article 29(1) to 29(7) of the Regulations for Establishment and Administration of Insurance Enterprises, an insurance company that uses the internet or other electronic communication channels to sell insurance products to customers is defined as an online-only insurance company. Furthermore, the minimum paid-in capital must be:

• TWD1 billion for non-life insurance; and
• TWD2 billion for life insurance.

Moreover, an online-only insurance company must submit a successful business model and have a promoter engaged in big data analysis, interface design, software development, IoT, wireless communication, or other financial technologies. The business plan submitted by an online-only insurance company should include items such as:

• customer identity verification mechanisms;
• an assessment by a certified public accountant to ensure the budget is sufficient to meet the needs of such an information system and to operate the business properly for the next five years; and
• plans for the business model and insurance products.

In order to enable prompt basic protection in case of injury or death caused by a micro-electric scooter accident, Taiwan passed the draft amendment of the Enforcement Rules for the Compulsory Automobile Liability Insurance Act in November 2022. This provides that owners of micro-electric scooters must purchase compulsory liability vehicle insurance.

On 10 August 2023, in response to Taiwan’s financial technology development and digital transformation in recent years, the FSC has amended several regulations in “Directions for Operation Outsourcing by Insurance Enterprises” to strengthen the control of the risk management principles and operating procedures in connection with the outsourcing operations of an insurance enterprise (Article 4 and 7). Besides, if a service provider violates any provision of the above-mentioned directions or other regulations, the competent authority ‒ in view of the severity of violation ‒  may:

• notify the insurance enterprise to terminate the outsourcing per the outsourcing agreement;
• require the insurance enterprise to make improvements within a given period of time; or
• temporarily suspend the outsourcing until improvements made by the service provider are confirmed (Article 20).

Moreover, according to Article 18 of the above-mentioned directions, an insurance enterprise must comply with the following rules when its outsourced operations involve cloud services.

• The insurance enterprise shall formulate policies and principles for using cloud services, adopt appropriate risk management and control measures, and heed the proper diversification of operations outsourced to cloud service providers.
• The insurance enterprise shall take the ultimate responsibility for the supervision of cloud service providers and shall possess the professional skills and resources to supervise the cloud service providers’ execution of outsourced operations. If necessary, it may request professional third parties to assist in their supervision operation.
• The insurance enterprise may appoint an independent third party with expertise in information technology at its sole discretion or together with other insurance enterprises that outsource to the same cloud service provider to conduct audits and shall comply with related rules.
• Where the insurance enterprise transmits and stores customer information at the cloud service provider, it must adopt customer data encryption, tokenisation, or other effective protection measures and establish appropriate encryption and key management mechanisms.
• The insurance enterprise shall retain complete ownership of data outsourced to cloud service providers for processing. The insurance enterprise must ensure that the cloud service provider does not have the right to access customer data except for the execution of outsourced operations and that the cloud service provider does not use the data for purposes outside the scope of outsourced operations.
• The location for processing and storing customer data outsourced to a cloud service provider must be in accordance with related rules.

Furthermore, in October 2023, the FSC amended related regulations in “Directions Governing E-Commerce Conducted by Insurance Enterprises” and “Directions on Insurance Enterprise, Insurance Agent and Insurance Broker Cross-Industry Collaboration for Promotion of Ancillary Insurance Products”. The FSC also hope to develop more innovative insurance products and provide the consumer with better e-commerce services. In addition, the Taiwan government are trying hard to push the insurance business to collaborate with fintech by engaging in big data analysis, interface design, software development, IoT, wireless communication, and so on.