"Stable Growth in New Contract Value of Life Insurance Companies, Need to Diversify Product Supply"

[Asia Economy Reporter Changhwan Lee] Despite the rapid changes in the insurance sales environment caused by COVID-19, an analysis shows that the new business value (VNB) of major life insurance companies is demonstrating stable growth.

According to the report titled "Recent Trends and Implications of New Business Value in Life Insurance Companies," published by the Korea Insurance Research Institute on the 4th, the new business value of listed domestic life insurance companies has shown an overall upward trend since 2015.

New business value is a figure that reflects the expected profits generated from future new contracts, calculated on a present basis. Ahead of the implementation of the new international accounting standard IFRS17 scheduled for next year, the proportion of high-profit general protection insurance products is expanding, accelerating the increase in new business value for life insurers.

The report explained that despite a slowdown in the proportion of annual premium equivalent (APE) of protection insurance in new contracts, the continuous increase in new business value is due more to the qualitative composition of protection insurance rather than its quantitative growth.

Life insurance companies have maintained a product portfolio strategy since 2015 that reduces the proportion of savings and pension insurance while expanding the proportion of protection insurance focused on whole life insurance. This strategy has increased new business value.

Looking at the trend of new business value within embedded value (EV), it can be indirectly inferred that these product portfolio changes have positively impacted the profitability of life insurance companies, and such strategies are expected to continue even after the introduction of IFRS17.

However, the report forecasts that insurers may prefer short-term or renewable products over long-term products due to profitability concerns.

Therefore, it stated that insurers need new product strategies that consider not only short-term profitability but also long-term profitability fluctuations. To respond to changes in economic assumptions, expanding investment-type products such as variable insurance, which have lower burdens from interest rate or asset yield changes, could be an alternative.

Additionally, the report pointed out that if insurance companies neglect providing products and services that consumers want, it could undermine consumer trust, which is the foundation for long-term growth. Hence, to establish a long-term growth foundation, continuous supply of products that meet consumer demand is necessary.

Kim Sejung, a research fellow at the Korea Insurance Research Institute, noted, "Although consumer demand for retirement income security is increasing due to aging, pension products have not been actively supplied because they are long-term contracts and less profitable compared to protection insurance."

Researcher Kim said, "Insurance companies find it difficult to supply products with low profitability even if consumer demand is high, so efforts are needed to increase incentives for product supply by improving product design profitability for products with high consumer demand."

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