Global consulting firm McKinsey has issued a warning that South Korea’s domestic insurance market is reaching saturation. Small and mid-size insurance companies, which suffer from performance deterioration, are expected to be at risk with the introduction of new International Financial Reporting Standards, which will put a heavier capital expansion burden on them.
McKinsey, in a Nov. 7th financial report warned, “The emerging insurance markets, such as China and Brazil, marked a high growth of 12% to 15% on-year last year, but the United States, South Korea and Japan, which have already a matured market, had only 1% to 2% 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.”
The Korea Insurance Research Institute (KIRI) recently gave a worrying outlook – that Korean insurers’ earnings and original premiums will decrease 0.8% further next year, which was a decline for the third year in a row.
KIRI predicted that the income and loss before income taxes of life insurance companies and non-life insurance companies in 2022 will fall 57%, and 75% respectively, compared to 2017. With the introduction of the new IFRS 17 standards, sales of both life insurance and non-life insurance products has declined and companies are experiencing slowing 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, reorganization 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 percent. As the insurance purchase rate per household surpassed 90 percent, the insurance market has reached the saturation point. The industry is seeking for a new industry, like pet market, but it is hard to blindly increase the market because the ratio of risks has not been proved yet.”