Small-Sum Short-Term Insurance Barriers Lowered... But Insurers Say "We Need to See the Details"

Low Profitability Expected in Microinsurance
"Who Would Willingly Jump In?" Skepticism Arises

[Image source=Yonhap News]

[Asia Economy Reporter Oh Hyung-gil] Starting next month, the entry barriers to the small-amount short-term insurance market will be lowered, but the insurance industry's response remains lukewarm. Although the emergence of small insurance companies specializing in selling insurance closely related to consumers' daily lives, such as pet insurance or theft insurance, is anticipated, existing insurers are taking a wait-and-see approach.

According to the insurance industry and financial authorities on the 21st, with the enforcement of the amended Insurance Business Act on June 9, the capital requirement for establishing an insurance company will be lowered to 2 billion KRW, which is one-fifteenth of the 30 billion KRW required for general comprehensive insurers. Furthermore, companies can start as small-amount short-term insurers and, as they grow, convert into life or non-life insurance companies. Existing insurers are also allowed to establish small-amount short-term insurance subsidiaries.

The licensing process for small-amount short-term insurers proceeds in the order of preliminary preparation, provisional license, full license, and commencement of business. However, no company has yet received a provisional license from the financial authorities. Among existing insurers, none appear ready to enter the small-amount short-term insurance market as subsidiaries. Consequently, there are even talks that nurturing the small-amount short-term insurance market may not be smooth before the law's enforcement.

Initially, expectations for small-amount short-term insurance were high. The success case of Japan, which introduced a similar system earlier than Korea, served as a foundation. Since introducing small-amount short-term insurance in 2005, Japan has seen rapid growth with products such as leisure insurance, bicycle insurance, weather insurance, and lawyer insurance.

The Financial Services Commission's Financial Industry Competition Evaluation Committee has stated that small-amount short-term insurance is necessary to increase competition in the domestic non-life insurance market. They also forecast that by utilizing platforms, business partnerships, and simple non-life insurance agencies with high geographical proximity and consumer accessibility, sales channel competitiveness can be secured.

Small Amount and Short Term Insurance Briefing YouTube Screenshot

However, the insurance industry points out that profitability is difficult to expect from small and simple insurance alone. The enforcement decree under the amended Insurance Business Act sets the insurance period for small-amount short-term insurance products at one year, with a maximum insurance payout limit of 50 million KRW and an annual premium income cap of 50 billion KRW.

A life insurance company official said, "The scale of the existing market and premium income is too different; would anyone readily jump in expecting an annual premium income of 50 billion KRW?" He added, "Fintech companies need to participate, but considering the initial cost burden, making a profit will not be easy."

The bigger problem is that small-amount short-term insurance has yet to establish itself domestically. So far, insurers have introduced mini-insurance products such as driver insurance costing 990 KRW per month, cancer insurance for 10,000 KRW, and leisure insurance for 2,000 KRW, but in reality, most are strategic products intended to attract the interest of younger customers.

An insurance industry official said, "There are hardly any hit products among the mini-insurance products introduced so far. It is an open secret that mini-insurance does not make money even if sold," expressing concern that "While it is positive for various insurance products to emerge and activate the market, unverified insurance products could only cause consumer harm."

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