[Big Tech Enters Insurance] Kakao Sonbo's Car Insurance Battleground... Could Become a Tempest in a Teacup

<Part 1> Kakao Sonbo Unveiled
Preliminary Approval Review... Business Launch in Early Next Year
Insurance Company Competition and Differentiation Strategy Decided

[Editor's Note] The insurance invasion by big tech (large information and communication companies) has begun. They dream of expanding the success story achieved in internet-only banks, based on large platforms familiar to the MZ generation (Millennials + Generation Z), into insurance. Kakao has launched a digital non-life insurance company and is directly selling insurance, while Naver is building a complex financial platform starting with partnerships in the insurance sector through insurance comparison services. The emergence of powerful competitors signals a wave of change in the traditionally conservative insurance industry. The industry is responding swiftly by accelerating digital innovation based on insurance expertise. This article focuses on diagnosing the future of insurance through big tech’s insurance entry strategies and prospects.

[Asia Economy Reporter Oh Hyung-gil] The insurance industry views Kakao Pay, which is awaiting preliminary approval for its digital non-life insurance company, as a storm before the calm.

This is due to concerns that the dominance in insurance contract recruitment could be taken away based on KakaoTalk, which has as many as 35 million users. On the other hand, some predict it will be just a storm in a teacup in competition with insurance companies that have firmly secured their core customer base.

According to the insurance industry on the 8th, the Financial Services Commission will hold a regular meeting on the 9th of this month to discuss the agenda for preliminary approval of Kakao Pay’s digital non-life insurance company. It has been about six months since Kakao Pay applied for preliminary approval to establish the tentatively named ‘Kakao Non-Life Insurance Co., Ltd.’ with the Financial Services Commission on December 29 last year. If preliminary approval is obtained this time and the final approval is received by the end of this year, full-scale operations could begin as early as the first half of next year.

The business model of Kakao Non-Life Insurance is still shrouded in mystery.

Currently, Kakao Pay provides insurance diagnosis analysis and automobile insurance premium comparison services, including mobile phone insurance and insurance gifting functions through KP Insurance Service, a subsidiary insurance agency (GA). So far, it mainly plays the role of a sales channel.

The insurance industry expects Kakao Non-Life Insurance to launch subscription-based, lifestyle-oriented insurance. Lim Sung-gi, head of Kakao Pay’s insurance business promotion office and a former employee of Kyobo Lifeplanet, the first digital specialized insurance company, said, "The characteristics of the digital insurance business model will activate concepts such as sharing, subscription, and peer-to-peer (P2P) transactions more," adding, "Lifestyle-oriented insurance will develop centered on digital insurance through the combination of ICT and insurance."

However, the general view is that the battleground will be automobile insurance. Automobile insurance is a mandatory insurance that every driver must subscribe to and must be renewed annually, making it a fiercely competitive market among existing insurers.

In particular, the online-based direct market grew by 30% from the previous year to 5.6 trillion won last year. Growth is expected to accelerate as non-face-to-face transactions expand after COVID-19.

The problem lies in the profitability of automobile insurance. Due to increased loss ratios, it has been in the red for years, and the cost burden of building a compensation infrastructure is significant. Digital insurer Carrot Non-Life Insurance has reduced costs by utilizing the compensation infrastructure of its major shareholder, Hanwha Non-Life Insurance.

Kakao Pay is reported to have already secured a considerable number of compensation organizations to obtain preliminary approval. While there are prospects of partnerships with existing insurers or acquisitions, it is expected to expand recruitment after its launch.

The performance of digital non-life insurers that have entered the automobile insurance market earlier is still modest. Carrot Non-Life Insurance surpassed 200,000 subscribers after launching per-mile automobile insurance in February last year but has not escaped perennial losses. Hana Non-Life Insurance (formerly The-K Non-Life Insurance) is approaching its first anniversary but holds a negligible market share.

An insurance industry official said, "The success or failure of the digital specialized non-life insurance company Kakao Pay is pushing depends ultimately on automobile insurance," adding, "Long-term insurance, which requires long-term subscription, does not fit the business model, and there is no possibility of entering the loss-making actual expense insurance." He continued, "When competing with the rapidly growing direct channels of non-life insurers, apart from the sales channel, there is still no visible differentiated competitiveness."

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