Digital insurers fall behind despite deregulation in Korea

Digital insurance companies in South Korea are experiencing a setback in their growth, despite regulatory improvements in the insurance sector, according to a new study. While there are expectations that the upcoming “Insurance Product Comparison and Recommendation Service,” scheduled to be implemented in early 2024, will significantly improve the accessibility of online insurance products, there are also concerns that online competition will intensify.

According to an analysis by Maeil Business Newspaper on Thursday of the country’s five digital insurance companies’ business disclosures in the first half of 2023, all of the companies reported a net loss for the period, with Kakaopay Insurance Corp. incurring a loss of 18.1 billion won ($13.43 million), Hana Insurance Co. 18 billion won, Carrot General Insurance Corp. 16.5 billion won, Kyobo Lifeplanet Life Insurance Co. 9.1 billion won, and Shinhan EZ General Insurance Co. 1.3 billion won. Notably, Hana Insurance, Kyobo Lifeplanet, and Kakaopay Insurance saw an increase in their losses compared to the same period a year ago.

In November last year, Korean financial authorities embarked on extensive regulatory improvements with the goal of digitizing the insurance industry. At that time, the authorities presented policies such as relaxing the “one company, one license” permit limit, which allows one life insurance and one non-life insurance company to come under the same insurance group, as well as activating insurance solicitation via digital and non-face-to-face channels, to promote competition and innovation in the digital era. Despite the passing of a year since the significant regulatory improvements, digital insurance companies’ performances have regressed.

Insurance industry insiders said that digital insurance companies are structured in a way that makes it difficult to achieve short-term results since they function like platform businesses. “It is difficult to realize economies of scale without a large number of users,” according to an official from Kakaopay Insurance. “There may be concerns about performance indicators that are visible from the outside, but we are focusing on how many people are using the platform rather than short-term performance.”

Another challenge is that insurance consumers are used to the insurers’ face-to-face business structure. According to an analysis by the Korea Insurance Research Institute of the differences in subscription routes between financial products, based on data from the Bank of Korea, the Korea Exchange (KRX), and the Financial Supervisory Service, banking (74.7 percent) and financial investment (83.6 percent) products mainly rely on mobile and online subscriptions, while insurance products such as life insurance (99.1 percent) and non-life insurance (92.9 percent) are subscribed to via offline channels.

The relatively simple portfolios of digital insurers, who primarily focus on short-term, small-sum insurance (mini-insurance) and high loss ratio auto insurance products, are also a potential barrier to performance improvement. Excepting auto insurance, most of their main products have insurance premiums of 10,000 won or less, with subscription periods typically lasting one or two years at most.

An official from a digital insurer explained, “Until now, consumers’ insurance experiences have been carried out entirely through face-to-face interactions, making it difficult to sign up for a 20-year long-term insurance policy through a mobile application or website guidance.”

Digital insurance companies are expecting that the upcoming Insurance Product Comparison and Recommendation Service, set to begin early next year, could bring significant changes to the market environment. The service will allow users to compare and sign up for various insurance products from multiple insurance companies on online platforms, including automobile insurance, travel insurance, and actual expense health insurance, which users registered for via an insurance agency until now.