Small-Amount Short-Term Insurance to Be Introduced Next Month... Insurance Companies Filled with Skepticism (Comprehensive)

Low Profitability Expected for Microinsurance
"Mini Insurance Also Not Selling... Who Would Jump In Readily?"

[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 responding that they will only know once they open the lid.

According to the insurance industry and financial authorities on the 21st, with the enforcement of the amendment to the 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. Additionally, companies can start as small-amount short-term insurers and convert to life or non-life insurers as they grow, and 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, preliminary approval, final approval, and commencement of business, but so far, no company has received preliminary approval from the financial authorities.

Final approval can be applied for within six months after preliminary approval by meeting the insurance business licensing requirements, but under the current circumstances, the emergence of small-amount short-term insurers within this year is practically impossible.

Among existing insurers, there is no sign of preparing to enter the small-amount short-term insurance market as subsidiaries. As a result, even before the law is enforced, there are talks that fostering the small-amount short-term insurance market will not be smooth.

[Image source=Yonhap News]

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 the foundation. Japan, which introduced small-amount short-term insurance in 2005, quickly grew with the emergence of leisure insurance, bicycle insurance, weather insurance, lawyer insurance, and more.

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

However, the insurance industry points out that profitability is difficult to expect from small and simple insurance alone. According to the enforcement decree following the amendment to the Insurance Business Act, the insurance period for small-amount short-term insurance products is set at one year, the insurance payout limit is capped at 50 million KRW, and the annual premium income is limited to 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 seeing an annual premium income of 50 billion KRW?" adding, "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. This means they were intended to attract the interest of younger customers.

An insurance industry official said, "There are hardly any mini insurance products that have been hits among those previously introduced. It is an open secret that mini insurance does not make money even if sold," and expressed concern, saying, "While it is positive that various insurances come out to revitalize the market, unverified insurance products can only cause consumer harm."

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