South Korea's aging population poses a key challenge to the country's insurers in coming decades, with the share of the population aged 65 or above set to double to 32% by 2040 from 16% in 2020, Moody's Investors Service says in a new report released yesterday.
“Korea’s population is aging at a faster rate than Japan’s, and this trend will be credit negative on profitability and capital adequacy as demand for mainstream insurance products – such as mortality protection and auto policies – declines,” says Mr Young Kim, a Moody’s analyst.
“We expect insurers will increasingly focus on third-sector products in pursuit of growth, such as health insurance which additionally is less sensitive to interest rate movements and consumes less capital than other traditional insurance products like savings and annuity,” added Mr Kim.
Such expansion is not without its own risks, and their growing exposure to health insurance will leave insurers vulnerable to risks such as medical costs inflation, regulatory intervention, and a lack of a claims record, which could lead to inadequate pricing.
Moreover, uncertainty remains around whether third-sector insurance alone can sustain the insurance sector’s credit standing, with risks of the unseasoned nature of new products. Even insurers that have adapted well so far will face rising competition while growing reliance on third-party agency channels to distribute third-sector products could push up commission expenses and further narrow margins.