[2020 National Audit] Shinbo Trade Credit Insurance, Growth Stagnates with Concentration in Prime Companies

Assemblyman Kim Byung-wook "Premiums of top-tier companies' insurance surged from 91.1 billion KRW in 2015 to 1.3443 trillion KRW in 2019"
"Measures needed to promote insurance enrollment for vulnerable companies in line with the purpose of trade credit insurance to prevent chain bankruptcies"

[Asia Economy Reporter Park Sun-mi] Concerns have been raised that the accounts receivable insurance provided by the Korea Credit Guarantee Fund (KODIT), introduced to prevent chain bankruptcies, is being operated contrary to its original purpose as the subscription scale has increased mainly among high-quality companies.

According to data submitted by KODIT to Kim Byung-wook, a member of the Democratic Party of Korea, the subscription amount for accounts receivable insurance by high-quality companies in 2015 was 91.1 billion KRW (0.6%), but it surged to 1.3442 trillion KRW (17.7%) in 2019. Meanwhile, the subscription amount proportions for "good," "above average," and "average" companies all decreased.

This phenomenon occurred as the growth rate of accounts receivable insurance subscription amounts gradually stagnated, recording 10.6% in 2016, 9.4% in 2017, 2.5% in 2018, and -0.5% in 2019.

KODIT operates accounts receivable insurance that pays insurance benefits in case of losses arising from credit transactions to prevent chain bankruptcies of small and medium-sized enterprises (SMEs) and mid-sized companies. When an insured company delivers products or services and secures accounts receivable, KODIT collects a certain insurance premium and guarantees the payment of the corresponding accounts receivable.

The problem is that, although insurance subscriptions should focus on vulnerable companies with weak finances and credit that are at high risk of chain bankruptcies due to deteriorating market conditions, subscriptions have recently been concentrated among high-quality companies over the past five years.

The insurance subscription amount for high-quality companies (AR1~2 grade) was 91.1 billion KRW in 2015, accounting for only 0.6% of the total, but surged to 1.3442 trillion KRW in 2019, representing 6.7% of the total.

On the other hand, the insurance subscription amount for good companies (AR3~5) increased slightly from 3.148 trillion KRW in 2015 to 3.7771 trillion KRW in 2019, but its proportion fell from 19.3% to 18.8%. The subscription amount for above-average companies (AR6~9) decreased from 6.3763 trillion KRW (39.2%) in 2015 to 6.2391 trillion KRW (31.0%) in 2019, and for average companies (AR10~13), it dropped from 4.3535 trillion KRW (26.7%) in 2015 to 4.3185 trillion KRW (21.4%) in 2019.

Meanwhile, the insurance subscription amount for below-average companies (AR14~16) slightly increased from 396.8 billion KRW (2.4%) in 2015 to 929.6 billion KRW (4.6%) in 2019.

Lawmaker Kim Byung-wook pointed out, “As the growth of accounts receivable insurance stagnates, there is suspicion that KODIT has increased the subscription proportion of high-quality companies from a profitability perspective,” adding, “Measures to promote subscriptions by vulnerable companies should be promptly established in line with the original purpose of accounts receivable insurance to prevent chain bankruptcies.”

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