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The Framework of
the Compulsory Automobile Liability Insurance
Differentiation Supervision Mechanism

The Framework of the Compulsory Automobile Liability Insurance Differentiation Supervision Mechanism (DSM) for insurance companies was approved by the Financial Supervisory Commission (FSC) in June 2007 to enhance insurance companies' operations of the Compulsory Automobile Liability Insurance (CALI), to achieve the goal of the legislation, and to accelerate sound development of the CALI system. It is also expected that, through the implementation of DSM, corporate governance and insurers' disciplinary agreements will be strengthened.

  1. Purposes of DSM

    1. To establish a way to examine the effectiveness of the insurance companies' operations of the CALI in order to accelerate sound development of the CALI.
    2. To strengthen corporate governance and insurer’s disciplinary agreements by examining the differences among insurance companies’ operations of the CALI.
    3. To help insurance companies operate the CALI more efficiently, the FSC manages insurance companies differently by using the results found in DSM.
  2. Key points of DSM and ways of implementation:

    1. Establishing key indicators from financial, business and managerial points of view
      1. Financial Aspects
        • To make a reserve according to regulations.
        • To manage the pool account and the claim recovery according to the pool disciplinary agreements.
        • To check and review the adequacy and stability of ratio of the risk-based capital ratio.
      2. Business Aspects
        • To write the business according to regulations.
        • To transmit the data to the CALI database according to regulations.
        • To handle claim cases according to regulations.
        • To deposit its apportionment of the Motor Vehicle Accident Compensation Fund according to regulations.
      3. Managerial Aspects
        • To check and review the establishment and implementation of internal audit system.
        • To comply with the Regulations Governing the Accounting Arrangements and Procedures for Submitting Business and Financial Reports of the CALI.
        • To check and review the establishment and implementation of mediation system for disputes.
        • To verify whether or not there are major moral hazards caused by internal or external party.
        • To check and review the finances, business and operating results of the CALI.
    2. Establishing a scoring system for each indicator to differentiate insurance companies.
    3. Frequency of application: annually

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