Loading
Go To Content

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. The project has proven to be quite effective since its implementation. We are developing an assessment framework for the mechanism that is based on the implementation experience to achieve better effectiveness.

  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. Design of the evaluation rubric: Based on previous implementation experience, we have identified the following six key areas of concern:
      1. Underwriting: accurate documentation of insurance information, data validation, and premiums
      2. Claims: setting payout standards, processing of claims and appeals, etc.
      3. Operational and financial reporting: accounting treatments, creating reserves, and capitalization of funds
      4. Operating performance: financial ratios and RBC (Risk-based capital) ratio
      5. Corporate governance: internal audits and controls; billing and policy issuance
      6. Other: co-insurance and insurance pooling agreements; facilitating the sound development of premium payments, and contributions to the MVACF
    2. Each category is differentiated into basic assessment items and bonus points. Basic items shall be handled in accordance with regulations. If not, points will be deducted. Bonus points can be acquired if evidence of proactive actions initiated by companies has been examined and accepted.
    3. Scoring rules shall be formulated for each category to serve as benchmarks for assessing the discrepancies between companies.
    4. Frequency of assessment: Currently, the assessment is conducted on a yearly basis.