Proposed Revisions to Indemnity Insurance... Market Reacts Indifferently

Hanwha Life Insurance, Hyundai Marine & Fire Insurance, and Others See Stock Price Decline

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[Asia Economy Reporter Kum Boryeong] The government’s announced reform plan for indemnity insurance has received lukewarm responses from property and casualty insurance stocks.

According to financial authorities on the 11th, the Financial Services Commission and the Financial Supervisory Service unveiled the indemnity insurance reform plan on the 9th, which centers on the introduction of a differentiated premium system. Starting from July next year, 4th generation indemnity insurance products will be launched, and premium discounts and surcharges will be applied from the point three years after enrollment.

The newly proposed indemnity insurance reform plan is expected to reduce the premium burden for new subscribers and enhance fairness in premium burdens among subscribers. This is because there have been many criticisms that some indemnity insurance subscribers’ excessive medical use has led to premium increases and rising loss ratios.

Jeon Baeseung, a researcher at Ebest Investment & Securities, analyzed, "The differentiated premium system will influence the suppression of excessive non-reimbursable medical treatments, which is the fundamental cause of the rising loss ratio in indemnity insurance." He added, "The direction of discussions such as standardization of non-reimbursable items, improvement of the review system, and additional measures to block moral hazard is expected to be positive for property and casualty insurers."

Property and casualty insurance stock prices remain sluggish. Hanwha General Insurance, which was at 4,260 won on the 8th, a day before the reform plan was announced, fell 6.46% to 3,985 won the following day. Hyundai Marine & Fire Insurance also dropped 1.31%, from 22,900 won to 22,600 won. During the same period, only Meritz Fire & Marine Insurance rose 2.37%, from 14,750 won to 15,100 won, while Samsung Fire & Marine Insurance and DB Insurance showed marginal increases of 0.27% and 0.34%, respectively, indicating a sideways trend.

A notable shortcoming is the lack of a clear direction regarding premium increases and loss ratio management measures for existing subscribers. Due to passive rate hikes in recent years, the indemnity risk loss ratio soared to 133.9% as of last year. The extent of next year’s rate increase is crucial for stock prices to rebound. Given the steep rise in insurance payouts, a single-digit rate increase is unlikely to improve the loss ratio trend. Until aggressive rate hike guidance is presented, it is expected that investment sentiment toward property and casualty insurance stocks will not easily improve.

Jung Gilwon, a researcher at Mirae Asset Daewoo, explained, "Property and casualty insurance stocks have been sideways after recovery, but they are approaching an important turning point." He added, "If progress is made in more structural solutions such as claim simplification and differentiated premiums for existing indemnity insurance, the momentum for the property and casualty insurance sector will become visible."

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