THE DEVELOPMENT OF TAIWAN “PRE-NEED FUNERAL ARRANGEMENTS＂

The pre-need funeral arrangement concept was introduced to the Taiwan market in 1993. Before that, most funeral homes provide funeral or cemetery service to immediate market. Even though, they also have few pre-planning programs, most of them are selling cemeteries.

Although pre-need funeral arrangement was introduced in the Taiwan market in 1993, it has not been popular until these two years. Why it is more popular now? It has some certain social background. This section will probe into more details about Taiwan funeral service market development.

2.3.1 The aging population, low birth rate

The aging population seems to be a trend in nowadays. According to the statistic of Executive Yuan in 2003, the percentage of people over age 65 is increasing from 8.3% (1998) to 9.2% (2003). The Development of Economic Association even predicted that this number will reach to 21.6% in 2030. This information means that Taiwan is stepping into a population aging society. The rest home issue, long term care issue and funeral arrangement and any issues related to this growing number of

aging people will be highly concerned by the government, and the public. More and more people agree they should prepare for their funeral arrangement and life planning when they are young.

On the other hand, most families in Taiwan have only one child. Some people even think they just want to get married, not having a baby. According to the statistic of Taiwan birth rate from 1980 to 2003, we found that the birth rate in Taiwan has been dramatically declined from 2.3% to 1.06%. This kind of phenomenon indicates that people have to manage their future life well instead of relying upon their children.

Figure 2.1 display the percentage of people over age 65 in Taiwan.

Figure 2.1: Percentage of people over age 65 in Taiwan

8.30%

1998 1999 2000 2001 2002 2003 2004

year

Source: Directorate-General of Budget, Accounting and Statistics, Executive Yuan

2.3.2 The expenses of Taiwan Funeral service industry

According to the statistic of social department of Taiwan Province (1997), the average total expense of funeral per person is NT$ 367,757. (Table 2.1) Most of the money spent on the funeral ceremony (NT$ 140,274), the second is cemetery (NT$

121,486). The details are shown on Table 2.1. If the inflation rate is 2% every year, the total funeral expenses in 2010 would be NT$ 475,733. In 2050, this number would be NT$ 1,050,437. (Table 2.2) That means if you don’t prepare your funeral arrangement now, you might have to pay over one million NT dollar after 50 years.

These information also show how important is the pre-need funeral arrangement and the coming trend of pre-planning concept.

Table 2.1 Breakdown of Taiwan funeral service expense

Item Average Expense (NT$)

Total expense 367,757 Source: Social department of Taiwan Province (1997)

Table 2.2 Prediction of funeral expenses growth by 2% inflation rate per year

year 1997 2010 2030 2050 funeral

expense(NT$) 367,757 475,733 706,914 1,050,437

2.3.3 How big is this market?

According to the statistic of Ministry of Interior in 2003, we found out that there are 128,357 people died in 2002. If the total funeral expenses per person in 2002 are around NT$ 400,000 (calculated by the same base as Table2.2), the immediate market volume in Taiwan would over NT$ 51.3 billions per year. Therefore, we can use the same method to predict the pre-need market. If we assume people over age 65 are the target market, the people over age 65 in 2003 are around 2 million in 2003, then the total market volume of the pre-need market would over NT$740 billions. Moreover, the overall potential market is greater than the target market, because not only the target market will buy this service.

Many people would be very surprised at the above figure. If the population aging and inflation raise problem get worse, more people will pre-plan their funeral arrangement and retirement life earlier than ever. The pre-need market would be

2.3.4 The development of Taiwan “Pre-need Funeral Arrangements＂

Before 1993, most funeral homes provide funeral service to immediate market.

After they finished their service, they charge money for customers. From 1989~1994, some funeral homes think about exploring the potential market and new business opportunities. They start to sell pre-need funeral tower or cemetery for customers who plan for future demand, so that they can earn more money and get more prospects for future business. Gradually, they expand their service including pre-need funeral arrangement. (Zi qiang, Li, 2002).

Pre-need funeral arrangement was introduced to Taiwan in 1993. Most of the products concept is learned from U.S by the funeral homes. The product content and business model has some different characteristics in order to fit into Taiwan’s consumer behavior and culture. Table 2.3 displays 4 main products in Taiwan market.

The prices of these four products only focus on the funeral service, excluding cemeteries and towers. If they want to buy a cemetery or tower also, they have to pay additional expenses.

Table 2.3 Pre-need funeral arrangements in Taiwan

Company Guobao ChinPaoSan Zhanyun Longyan

Time 1994 1997 2001 1996

Type of Products

1 2 3 3 Price (NT$) 159000 172000/292000 156000-179000 160000~640

000

Every county Big cites Leaguers Big cites Exercise

More people are known about pre-need funeral arrangement through TV commercials, newspaper and Internet, but many people still don’t know this product well. The research did a comparison between traditional funeral service and pre-need funeral arrangement to help readers to understand the differences between these two different products.

1. Product contents

Usually people avoid talking about death, they know little about funeral arrangement. When they have to deal with their family member’s funeral, it is really a hard time to them. They took everything that funeral homes proposed and didn’t know if it is necessary to do. The product contents in this industry are not transparent, and suitable for customers. Pre-need funeral arrangements disclose its product contents and services very clearly, customers can know what they buy when they are still alive. All of the service contents have to be agreed by the mutual parties and signed in a contract.

2. Price

As customers know less about funeral arrangement, they also have no idea about funeral expenses. They might pay more to the funeral expenses and waste a lot of money. Pre-need funeral arrangement is pre-planed by customer; customer can know the price when they buy this service. Specially, this price will be fixed from the time customer buy the service. Therefore, compare to the traditional funeral product, pre-need funeral arrangement considers the inflation issue for customers.

3. Funeral expenses will cause a financial problem to a family

Funeral expense is one of the most expenditure of a family. In a lower income family, funeral expenses will put the family into a worse financial situation if they can not pay but they have to. Compare to the traditional way, the pre-need arrangement usually pay a single amount or installment, so when family encounter this situation, their financial problem will become smaller or even zero.

4. Follow the deceased’s last will

Traditional funeral arrangement can not follow the deceased’s last will, usually the family member make the decision for funeral arrangement. The pre-need funeral arrangement is arranged according to his wish before the deceased die, so it can respect the deceased’ last will.

Table 2.4 Comparison between traditional funeral service and pre-need funeral service Traditional funeral service Pre-need funeral arrangement Product Content Not transparent Transparent

Price No standard price Standard price（fixed）

Financial

problems Yes Lower financial problems

Follow the

deceased’s will No Yes

2.3.5 Comparison pre-need funeral arrangement between American, Japan and Taiwan

As we learn form American and Japan market experience, we found that people in U.S are more open and willing to plan their future in advance than Taiwan.

However people’s thinking change over time, many funeral homes think Taiwan’s pre-need funeral market is stepping into a booming future. This research did a comparison about pre-need funeral arrangement in American, Japan and Taiwan.

Table 2.5 Comparison of pre-need funeral market between American, Japan and

Taiwan

American Japan Taiwan

History 70 years 50 years 10years

Price NT$ 317,000 NT$ 733,000 NT$ 377,000

Market Share 35% 35% 1%

Source: http://www.lungyen.com/inside4.htm

2.3.6 Insurance linked with funeral service through insurance benefits trust

In Taiwan, there is no funeral insurance. One of the reasons is the insurance companies are not specialized in funeral industry. The other reason is the MOF does not allow the insurance companies to put funeral expenses as a coverage in the insurance policy so far. The only way to link the insurance and funeral service is through insurance benefits trust from bank. Some customers can sign a trust contract with the bank to tell the bank how to deal with their properties if one day they died.

These properties include insurance policy. One kind of trust is insurance benefits trust which is a contract that customer signed with the bank. After signing this contract, the bank would use the trust fund to buy insurance, when customer died, the bank would pay insurance benefits to the funeral homes. For customers, they think it is safer to pre-plan their funeral through this way than buying a pre-need contract from funeral homes.

Actually, there are some disadvantages of this product. One is customers have to pay a lot of fees to bank for signing and maintain this insurance benefits trust. The other disadvantage is it is not convenient and simple enough for customers. However, this is the only way for insurance companies extending their service to funeral service

Though the government hasn’t opened the funeral service putting into the insurance policy, the insurance companies like Shinkong Life, Global Life, Fubon Life, and Kuo Hua Life are trying to persuade MOF to open this new coverage or business in order to provide their customers a really whole life service. At the same time, they also can expand their business to a new potential market.

2.3.7 The profile of Taiwan Funeral and Life insurance industry

According to a thesis written by Li-Ching, Tsai in 2003, she mentioned about that there are around 27,500 funeral homes in Taiwan, and the total working people in this business is around 80,000. Most of the funeral homes are very small companies with no business management and professional training. The total capital of the biggest funeral home is less than NT$ 0.8 billion. This is the main reason that people feel hesitate to buy a pre-need funeral arrangement from these funeral homes.

Compare to funeral industry, insurance companies are much bigger. There are 29 life insurance companies in Taiwan, over 260,000 people working in this industry.

According to the insurance law, the minimum capital to form an insurance company is NT$ 2 billion. Every new insurance policy including coverage, price, and insurance reserve contribution has to been approved under the MOF’s requirements. Beside that, the insurance companies are required to contribute reserve into Insurance Safety Fund

in order to guarantee the enforcement of the policy. The capital of the biggest insurance company in Taiwan is over NT$ 83 billions. Furthermore, most of the companies have good business management, professional training. Legal license is required by every sales agent if they want to sell insurance.

According to the above information, Insurance companies tend to be more reliable and creditable than funeral homes. Therefore, people might be more willing to buy a pre-need funeral service from insurance companies than from funeral homes.

2.3.8 Various products and tax issue make insurance more attractive

Twain insurance industry has been developed for over 60 years. At the beginning, people prefer the saving product. So the 3-6 year endowments are the most popular products. As the economic and education level advanced, people concern more about diversifying different risks during their lifetime. Nowadays, insurance products are more consumer-oriented and the government also gives a more open mild to encourage insurance company to develop good and creative insurance products.

Therefore, customers could buy various insurance products on the market. For example, MOF allowed insurance company to sell investment-linked insurance products from 2001. Recently they also consider open the insurance companies to sell

currency away from the exchange rate risk. Moreover, woman could also buy an insurance policy when they are pregnant. The baby could get some protection when he was still in mother’s body. To conclude, people could feel the insurance products innovation from time to time. The government is willing to approve the products that are beneficial to customers.

Insurance is attractive to customers not only because of it is a risk management tool, but also it has some tax free benefits. According to Insurance Law, Article 112, the death benefits are tax free. It means if you hold an insurance policy, when you died, the total insurance benefits are exempt from inheritance tax. This is a very good selling point; hence many people would buy insurance as an asset allocation tool.