South Korea's domestic insurance market is reaching saturation, says global consulting firm McKinsey & Company.
In a report released on 7 November, McKinsey & Company warned, “The emerging insurance markets, such as China and Brazil, marked a high growth of 12% to 15% on-year last year, but the US, South Korea and Japan, which have already a matured market, had only 1% to 2% of growth over the same period. The markets of South Korea and Japan, which have a rapid pace of aging population, will continuously show a slowdown of growth.”
In fact, earnings and original premiums in the domestic insurance industry are steadily falling, reports BusinessKorea. The Korea Insurance Research Institute recently gave a worrying outlook that Korean insurers’ earnings and original premiums will decrease by 0.8% next year, which would be the third consecutive year of decline.
In particular, the institute has predicted that in 2022, compared to 2017, the profit before tax of life insurance companies will fall by 57%, or KRW6trn to KRW3.4trn (US$5.3bn), and that of non-life insurance companies will plunge by 75%, or KRW5.7trn to KRW4.3trn. As the implementation of the International Financial Reporting Standard 17 has dragged down the sales of saving insurance products, both life insurance and non-life insurance companies are experiencing slower growth.
An official from the insurance industry said, “With the fall in guaranteed minimum interest rates due to low interest rates, introduction of the IFRS 17, reorganisation of sales commission systems and reduction of tax benefits, the purchase rate of life insurance and general saving insurance products in the non-life insurance sector will greatly decrease. In addition, the original premiums of non-life insurance companies practically show stagnation with an annual average growth of 0.4%. As the insurance purchase rate per household surpassed 90%, the insurance market has reached saturation point.”
The official said that the insurance industry is looking at new segments for growth, like the pet market, but it is hard to blindly increase the market because the ratio of risks has not been ascertained yet.