"Profitability of the Insurance Industry Worsens, Active Business Structure Reorganization Needed"

[Asia Economy Reporter Changhwan Lee] It has been argued that both the growth and profitability of the domestic insurance industry are deteriorating, and that capital efficiency must be improved through business structure reorganization.

On the 29th, the Korea Insurance Research Institute released a report titled "Institutional Improvement Measures to Activate Business Structure Reorganization in the Insurance Industry," stating that both the growth and profitability of the domestic insurance industry have worsened over the past 20 years.

In the life insurance industry, the average annual growth rate of premium income decreased from 7.2% (2002?2011) to 0.7% (2015?2020). The average annual return on assets (ROA) fell from 0.9% (2002?2012) to 0.4% (2015?2020).

In the non-life insurance industry, the average annual growth rate of gross written premiums declined from 12.7% (2002?2011) to 5.0% (2015?2020), and the average annual ROA dropped from 2.0% (2002?2012) to 1.1% (2015?2020).

The report argued that to restore the declining growth and profitability of the insurance industry, it is necessary to transition to a business structure that can effectively respond to environmental changes such as aging and digitalization.

This means that capital efficiency should be enhanced by reallocating capital from existing business sectors with slowing growth to new business sectors expected to grow in the future.

Among various means of business structure reorganization, the report focused on two methods: contract transfer and corporate division, referencing cases from advanced countries such as the United Kingdom, the United States, and Germany.

First, in the UK, the contract transfer system is actively used as a means of business structure reorganization. The key point of the UK’s contract transfer system is that contracts can be transferred to another insurance company with court approval without the consent of the policyholders.

In the case of reinsurance, since the reinsurer’s bankruptcy leaves the original insurer responsible for claim payments, the ultimate legal responsibility remains with the original insurer. However, in contract transfers, the legal responsibility can be completely transferred to the company receiving the business, which is an advantage.

Some U.S. states have introduced corporate division systems as a means of restructuring the insurance industry. Six states?Connecticut, Illinois, Iowa, Georgia, Michigan, and Colorado?have implemented corporate division systems applicable only to the insurance industry.

Germany also has a contract transfer system, but it differs from other countries in that contract transfers can be made with approval from the insurance supervisory authority (BaFin) without court involvement.

In Japan and Korea, contract transfers are possible with regulatory authority approval without court involvement; however, if more than one-tenth of policyholders oppose the transfer, it cannot proceed. The report explains that Germany’s regulatory authority has relatively greater power compared to other countries in this regard.

Im Jun, a research fellow at the Korea Insurance Research Institute, said, "In Korea, regarding the contract transfer system, it is necessary to refer to major countries’ cases and abolish the current regulation limited to comprehensive transfers, allowing partial transfers."

He added, "Regarding corporate division, there are no explicit provisions in the current Insurance Business Act. Since it is practically difficult to conduct corporate division under the Commercial Act, it is necessary to consider introducing a system that allows corporate division with regulatory authority approval without policyholder consent, referencing the U.S. case."

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