Foreign insurers make inroads into Korea to capture business sector demand

[Image source: Gettyimagesbank]

Global insurers have made their way to South Korea, the world’s seventh-largest insurance market, to capture demand from individual and corporate customers.

Starr Insurance Companies, a U.S.-based established insurance organization, has filed for preliminary approval to set up a local branch in South Korea to the Financial Services Commission (FSC), according to sources from the financial authority on Wednesday. The insurance company is expected to focus on casualty insurance services and traveler assistance plans.

Starr was the latest of the global insurers that are making inroads into South Korea. The FSC allowed Factory Mutual Insurance Co., or FM Global, another U.S. insurance provider, to establish a local branch last year. FM Global is a world-class insurance company that provides insurance coverage and support services for industrial and institutional properties.

Oh Byung-gook, the head of the Global Center under the Korea Insurance Research Institute, said at a conference last month that South Korea was ranked the seventh-largest in the world’s insurance market with a 2.8 percent market share. The country’s insurance premiums to gross domestic product (GDP) ratio reached 10.9 percent in 2021, higher than the world’s average of 6.8 percent.

Global insurers are a minority in South Korea, dominated by local rivals. Foreign insurance providers hold a market share of less than 2.5 percent and have a combined net income of 200 billion won ($149.4 million). Korean insurers have seen their earnings and stocks soar this year as they began using a new accounting method, the International Financial Reporting Standard 17, or IFSR17. In addition, foreign insurers with Korean operations have seen limited potential for growth from auto and life insurance businesses, such as health and casualty coverage plans.

That explains why non-life, industrial insurance has emerged as a new target from global insurers in South Korea. Foreign insurers have paid greater attention to the country’s non-life insurance sector, which has been dominated by four local giant insurers - Samsung Fire & Marine Insurance Co., Hyundai Marine & Fire Insurance Co., DB Insurance Co. and KB Insurance Co.

Korea has implemented stricter regulations on industrial accidents, the Serious Disasters Punishment Act, prompting more local industries to seek insurance services. “Industrial insurance products have high insurance premiums worth up to billions of won,” said an unnamed source from an insurance company. “Foreign insurers have sought to capture potential demand from that sector in which they face a less intense competition against their Korean rivals.”

Some market insiders doubted whether foreign insurers would make sustainable growth in South Korea, given that five life insurance companies so far ended up closing their Korean operations in the past decade.

However, several global insurers, such as LINA Life Insurance Co. of Korea and AIA Life Insurance Co., have solidified their market presence by providing life and pension services. The market share held by the insurers was around 20 percent, and their combined net profit was 1 trillion won.

“Foreign share of Korea’s life insurance market is on a similar level to the U.S., Japan and Germany,” said Oh. “That could encourage foreign insurers to choose other Asian markets with greater growth potential over South Korea, which suggests a growing need for regulatory measures to attract established global foreign firms.”