[2021 Financial Sector Review] Insurance Industry Accelerates Digital and ESG Management Efforts

2021 Financial Sector Review ② Insurance Industry
Benefited from COVID-19 Tailwinds
Premium Income 156 Trillion KRW... Up 2.1% YoY

Ko Seung-beom, Chairman of the Financial Services Commission (sixth from the left in the front row), is taking a commemorative photo with attendees at the meeting between the Financial Services Commission Chairman and the insurance industry held at Lotte Hotel in Jung-gu, Seoul on the 3rd. On this day, Chairman Ko met with insurance company CEOs and experts from related organizations to discuss the development direction of the insurance industry and key issues. Photo by Kim Hyun-min kimhyun81@

[Asia Economy Reporter Oh Hyung-gil] The insurance industry is forecasting record-breaking performance this year. Amid a saturated insurance market and a long-term downturn, the sector has benefited from a rebound effect caused by COVID-19. Increased interest in diseases and health, along with the end of the ultra-low interest rate era, made insurance products gain renewed attention as stable investment options.

However, the industry had to keep pace with drastic changes in the business environment brought on by COVID-19. The spread of non-face-to-face interactions accelerated digital transformation, and ESG (Environmental, Social, and Governance) as well as the separation of insurance manufacturing and sales emerged as new management agendas.

The trend of demanding innovation from insurers is expected to continue next year. Especially with the final preparations underway to respond to the new International Financial Reporting Standard (IFRS 17) and the new solvency regime (K-ICS) scheduled for introduction in 2023, a hectic schedule lies ahead.

Performance Boosts Brought by COVID-19

Initially, the outlook for the insurance market this year was mostly pessimistic. The Korea Insurance Research Institute forecasted that premium income would increase by only 1.7% compared to last year. It even predicted a slight decline (0.4%) in premium income for life insurers. However, the variable of COVID-19 brought unforeseen results.

From January to September, insurers’ premium income reached 155.6 trillion KRW, marking a 2.1% increase compared to the same period last year. Premium income for life insurers, which was expected to decline, actually rose by 0.9%, while non-life insurers achieved a remarkable growth rate of 3.5%.

As insurance sales increased, net profits also surged. By the third quarter, insurers’ net income was 7.6305 trillion KRW, a dramatic 37.3% increase from the previous year. Life insurers saw a 17.8% rise to 3.6915 trillion KRW, and non-life insurers reached 3.939 trillion KRW, an astonishing 62.6% growth. This is why the insurance industry often remarks, “If only COVID-19 had lasted.”

COVID-19 triggered many changes both inside and outside the insurance industry. It ushered in an ultra-low interest rate era that froze insurers’ investment income. Both life and non-life insurers saw investment operating profits either decline or increase only slightly compared to last year. However, it heightened interest in disasters and diseases, and social distancing measures reduced the use of medical institutions, dramatically lowering loss ratios for major products like automobile insurance.

Looking at products with increased premium income this year, life insurers saw growth in variable insurance (9.6%) and protection insurance (2.4%), while non-life insurers stood out in long-term insurance (5.3%) and automobile insurance (3.8%).

New Challenges: Digital Transformation and ESG

COVID-19 did not bring only bouquets to insurers. By accelerating non-face-to-face interactions, it put insurers?who had long relied on “people”?to the test of digital transformation.

Insurers had to reorganize by creating and expanding related departments to promote digital transformation, and they nurtured and secured specialized personnel in IT (Information Technology), artificial intelligence (AI), and big data. As the previously static organizational culture changed into one with greater execution power, restructuring of existing personnel became inevitable. Mirae Asset Life Insurance, KB Insurance, and Kyobo Life Insurance publicly conducted voluntary retirements.

New digital-only channels and products were also introduced. Samsung Fire & Marine Insurance, the direct sales leader in the non-life sector, launched a new brand called “Chak,” and Samsung Life Insurance signed a business agreement with Viva Republica, the operator of the financial platform Toss, marking active collaboration with IT companies. These efforts were all aimed at enhancing insurers’ digital adaptability.

Efforts to apply ESG, which has emerged as a new management agenda, to the insurance sector were also busy. ESG-related organizations were reorganized, and declarations of “coal phase-out” were made, pledging not to invest in or finance coal-fired power plants directly, nor invest in corporate bonds issued for the construction of new coal-fired power plants. Insurers joining the United Nations Environment Programme Finance Initiative (UNEP FI) Principles for Sustainable Insurance (PSI) also appeared one after another.

More insurers are attempting the “separation of insurance manufacturing and sales,” which is active in advanced insurance countries. Subsidiary-type sales corporations (GA) such as Mirae Asset Financial Services and Hanwha Life Financial Services were launched, and Hyundai Marine & Fire Insurance and Hana Insurance also established subsidiary-type GAs.

Since next year’s insurance industry is expected to be a continuation of this year, these agendas are likely to persist. Jo Jae-rin, Deputy Director of the Korea Insurance Research Institute, said, “The impact of COVID-19 was less than expected, but concerns about the post-COVID-19 era are significant. With the need to finalize preparations for new institutional changes, the insurance industry is expected to face another challenging year next year.”

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