"Money Flows Reshaped by 'Investment Popularization'... Insurance Companies Must Strengthen Product Competitiveness"

As individual investors increase their allocation to high-risk assets such as stocks and funds, analysts say that insurance companies need to strengthen their product competitiveness to meet growing consumer demand. There are concerns that if insurers do not respond by moving beyond simple savings products and offering performance-dividend products with integrated guarantee features, their position in the market may weaken.

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According to the Korea Insurance Research Institute on April 19, the share of equities and investment funds in the financial assets of households and non-profit organizations rose from 18.1% in 2019 to 26.5% last year. In contrast, the proportion of insurance and pensions fell from 32.8% to 26.6% during the same period.

This trend is attributed to the surge in individual investors triggered by the COVID-19 pandemic. Notably, net inflows have continued even during bear markets, and the trend of expanding both direct investments in individual stocks and funds, as well as indirect investments such as exchange-traded funds (ETFs), persists.

As households' exposure to high-risk assets has increased, their assets have become more vulnerable to market volatility. Consequently, the 'wealth effect' of stock price fluctuations on overall consumption and the economy has become more pronounced, leading to calls for the financial authorities to enhance investor protection and financial education, as well as to redefine the role of insurance companies. In the past, stable returns and guarantee functions were the competitive edge of insurance products, but as consumers gain more investment experience, they are demanding higher expected returns.

The need for pension insurance products that can secure both investment performance and a stable cash flow for retirement is being raised. ChatGPT generated image

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Experts are calling for the introduction of performance-dividend pension savings insurance products. These products seek returns by investing in high-risk assets such as ETFs while also guaranteeing a certain level of loss protection. For example, they pursue market returns during the accumulation phase, but at retirement or during sharp market declines, they guarantee a minimum accumulated amount, thereby securing both investment performance and stability at the same time.

Diversifying the payout structure for pensions is also cited as a challenge. It is argued that strengthening post-retirement fund management is needed through structures that allow for stable withdrawals of a fixed amount or secure cash flow regardless of market conditions.

Cho Younghyun, a research fellow at the Korea Insurance Research Institute, commented, "To enhance product attractiveness, it is necessary to increase the expected rate of return during the pension accumulation phase," adding, "However, insurers should not simply compete with securities companies on returns, but rather focus on a differentiated strategy that combines the unique risk guarantee function of insurance with investments in risk assets."

He continued, "In the case of defined contribution (DC) retirement pensions and individual retirement pensions (IRPs), insurers can actively provide more competitive investment funds and diversify withdrawal methods. Since new ETFs are being launched rapidly, it is important to quickly include promising ETFs to meet consumer demand, and insurers who have not yet introduced guarantee-type performance-dividend insurance products should consider doing so."

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