Cold Wave Engulfs Insurers... "It's Just the Beginning" Anxiety Spreads

Hanwha General Insurance, Lotte Insurance Post Net Losses for First Time in 6 Years

Samsung, DB and Other Major Firms Also Face 'Earnings Shock'

Product Sales Halted... Drastic Measures Unavoidable

"Non-Covered Item Management Needed to Prevent Insurance Payout Leakage"

[Asia Economy Reporter Oh Hyung-gil] Hanwha General Insurance and Lotte General Insurance returned to a net loss last year for the first time in six years. Samsung Fire & Marine Insurance, the No. 1 player in the non-life insurance industry, also saw its performance drop by about 40%. As the downturn in the industry becomes a reality, concerns are rising that the deterioration in performance for non-life insurers is just beginning. Some small and medium-sized companies are pessimistic, suggesting that continuing their business may become difficult. Experts point out that institutional solutions as well as structural improvements need to be urgently prepared.

According to the insurance industry on the 3rd, non-life insurers that recently announced their results plan to declare management emergencies and reduce business expenses through cost-cutting measures such as labor costs and improving work efficiency.

Lotte General Insurance recorded a net loss of 52.6 billion won last year, marking its first deficit since 2013. The loss increased by as much as 144 billion won compared to the previous year. Lotte General Insurance explained that the increase in losses was due to rising insurance loss ratios and, after the change of the largest shareholder from Lotte to Bigtura, additional losses from sale compensation and severance payments.

Accordingly, Lotte General Insurance has decided to completely overhaul its insurance product portfolio and embark on rigorous business expense reductions. Although it strengthened financial stability by issuing 80 billion won worth of subordinated bonds in December last year, it also announced plans for additional capital expansion this year.

Hanwha General Insurance also turned to a deficit last year as losses increased by about 150 billion won compared to 2018. The net loss amounted to 69 billion won. Investment operating income declined due to low interest rates, and insurance operating profit worsened as claims for major insurance such as automobile insurance increased.

Large non-life insurers are also experiencing an 'earnings shock.' Samsung Fire & Marine Insurance's net profit last year was 647.8 billion won, down 40% from 1.07 trillion won the previous year. DB Insurance's net profit decreased by 30% from 537.7 billion won to 387.6 billion won, and Heungkuk Fire & Marine Insurance also fell by 22%.

Hyundai Marine & Fire Insurance and KB Insurance, which are scheduled to announce their results on the 6th, are also expected to see a decline in performance. Their net profits from the first to third quarters last year decreased by 33.9% and 14.5%, respectively, compared to the same period the previous year. Meritz Fire & Marine Insurance, which reduced the proportion of automobile insurance earlier, was the only company to increase net profit by 28%, but this is analyzed to be due to raising net profit through the sale of high-quality bonds.

Non-life insurers are busy preparing countermeasures due to results falling below expectations, but there are calls for more fundamental institutional improvements. The core issues are indemnity insurance and automobile insurance. The non-life insurance industry estimates that the deficits in indemnity insurance and automobile insurance last year reached about 2.2 trillion won and 1.6 trillion won, respectively.

Since the beginning of this year, non-life insurers have been raising premiums for automobile insurance following indemnity insurance to defend against rising loss ratios. However, this is also pointed out as only a temporary measure. A non-life insurance industry official said, "With large companies also seeing declining performance, it is obvious that small and medium-sized companies will face increasing difficulties," adding, "We have no choice but to take drastic measures such as stopping the sale of insurance products with high loss ratios."

Experts suggest that insurance payout leakage should be prevented through institutional management of non-reimbursable items with high concerns of excessive treatment, such as cataract surgery or physical therapy.

Jung Sung-hee, a research fellow at the Korea Insurance Research Institute, advised, "It is necessary to increase the self-pay portion for non-reimbursable items to suppress factors driving premium increases and to expand policyholders' choices," adding, "In the long term, the insurance system should shift to a positive list approach that specifies non-reimbursable items covered by insurance."

This content was produced with the assistance of AI translation services.