Kakao vs SK, Earnings Hampered by 'Meoktock Incident'...Will It Affect Insurance Companies?

KakaoTalk Outage Halts Daily Life
Kakao: "Limited Financial Impact, Discussing Compensation with SK C&C"
SK: "Unfortunate Accident"... Responsibility Dispute Expected

Estimated Damage 20 Billion KRW... Insurance Compensation Limit Expected at 7.5 Billion KRW

[Asia Economy Reporter Ji Yeon-jin] Following the fire at the Pangyo Data Center on the 15th, which caused inconvenience to the majority of the public, Kakao and SK C&C have announced a forthcoming dispute over liability for compensation. Although there are concerns that this could negatively impact the performance of insurance companies, the prevailing analysis suggests that the compensation limits will be restricted.

According to the Financial Supervisory Service's electronic disclosure system on the 18th, Kakao stated in a pre-market disclosure the previous day that if compensation plans for stakeholders related to this fire are to be prepared, "discussions on compensation for losses will be conducted with SK C&C." Kakao also assessed that the financial impact on the sales and other financials of Kakao and its major subsidiaries would be limited. On the same day, Kakao Pay and Kakao Games also made similar disclosures.

SK, in a disclosure just before market close, stated, "The Pangyo Data Center has been regularly inspected in accordance with safety regulations under relevant laws," adding, "Since an unforeseen accident occurred, we will thoroughly review the corrective measures and implement actions to prevent recurrence, strengthen safety management, and further improve service levels." They also said, "The financial impact on SK Corporation’s sales and other financials due to this fire is expected to be limited."

Last weekend, due to a fire at the SK C&C data center, major Kakao services including KakaoTalk were suspended. On the 17th, forensic investigators were moving to conduct an investigation at the SK C&C data center in Seongnam, Gyeonggi Province.
/Seongnam=Photo by Kang Jin-hyung aymsdream@

This fire primarily places responsibility on SK C&C, which operates the Pangyo Data Center, while Kakao is criticized for not having a proper emergency recovery system in place, which exacerbated the situation by causing interruptions to services closely tied to the daily lives of the public, including KakaoTalk.

After Kakao announced it would discuss compensation with SK C&C, and SK C&C described the incident as an "unforeseen accident," a dispute over liability for compensation between the two parties is anticipated. Both sides have emphasized that the "financial impact is limited," suggesting they are considering damage compensation through insurance companies.

However, the amount of damage compensation through insurance companies is expected to be modest. According to the securities industry, the estimated maximum loss amounts are 10 billion KRW for Hyundai Marine & Fire Insurance, 10 billion KRW for Samsung Fire & Marine Insurance, and 5 billion KRW for Meritz Fire & Marine Insurance. Specifically, the XOL (Excess of Loss) limit for property insurance is 5 billion KRW for Hyundai Marine & Fire Insurance and 10 billion KRW for Samsung Fire & Marine Insurance. The XOL limit for liability insurance is 5 billion KRW each for Hyundai Marine & Fire Insurance and Meritz Fire & Marine Insurance. Researcher Lim Hee-yeon of Shinhan Investment Corp. stated, "Liability insurance has limitations in proving the actual scale of damage, so it is necessary to monitor future claims and payments."

In fact, SK C&C is known to have subscribed to liability insurance that compensates tenants in the event of an accident at the Pangyo Data Center, property damage insurance covering its own losses, INT E&O insurance (professional liability insurance for information and network technology), and electronic financial transaction liability insurance. Multiple insurers, including Hyundai Marine & Fire Insurance, jointly underwrote the contracts. The liability insurance covering personal injury and property damage has a limit of 7 billion KRW, and the property damage insurance limit is reported to be 400 billion KRW. The securities industry estimates Kakao’s fire damage at around 20 billion KRW.

Meanwhile, the virtual asset exchange Upbit has decided to compensate investors who suffered losses due to login difficulties caused by the KakaoTalk outage. Customers who attempted but failed to log in to their Kakao accounts will receive a refund of transaction fees in Bitcoin for three days from the 24th to the 28th.

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