[Asia Exclusive] "Profitable Insurance Companies, Unsung Heroes of Social Welfare... Urgent Need for Reassessment"

Interview with Ahn Cheol-kyung, Director of the Insurance Research Institute

Need to Change the Perception That "Insurance Should Not Make Money"
Private Insurance Role to Increase Like Work-Based Welfare

Ahn Cheol-kyung, President of the Korea Insurance Research Institute, is being interviewed on the 3rd at the Korea Insurance Research Institute in Yeouido, Seoul. Photo by Kang Jin-hyung aymsdream@

[Asia Economy Reporter Oh Hyung-gil] "Insurance companies pay out insurance benefits to policyholders when difficulties such as cancer diagnosis or traffic accidents occur. This money serves as an economic umbrella for consumers, helping them overcome hardships. Is there any consumer protection more impactful than this? If insurance companies fail to make profits and cease their insurance business, it would ultimately lead to a tragedy where consumer protection is impossible. A reevaluation of the social function of insurance is urgently needed."

When asked how the insurance industry, facing the crisis of 'negative growth' due to population decline and low interest rates, should overcome this challenge, Ahn Cheol-kyung, President of the Korea Insurance Research Institute, said, "A reevaluation of insurance must come first." He answered that distrust and distorted views of insurance are the fundamental causes of the current problems faced by insurance companies.

In a recent interview with Asia Economy at the Korea Insurance Research Institute in Yeouido, Seoul, President Ahn raised a Zen-like question, "Why shouldn't insurance companies make money?" However, through the ensuing dialogue, his argument that the crisis facing insurance can be overcome based on 'restoring trust' gained persuasiveness.

He diagnosed, "Looking at cancer insurance, which has been continuously controversial, the insurance payouts to consumers in 2018 amounted to about 6 trillion won. Auto insurance paid out 13.5 trillion won in claims," adding, "The social function of insurance in helping people facing economic difficulties is rarely visible, while some dispute cases are highlighted, spreading negative perceptions."

He further explained that this negative perception connects to the view that "insurance companies should not make profits," which exacerbates the management difficulties of insurance companies.

President Ahn pointed out, "To offset deteriorating profitability, companies sometimes realize profits through bond sales, which may mean portfolio rebalancing but also worsens future profitability," adding, "This year, interest rates have fallen further, raising concerns that maintaining profitability through bond sales will intensify."

He expressed concern, "In a market where no one can make money and companies cannot generate profits, who would lend money? Insurance companies struggling to raise capital ahead of the implementation of the new International Financial Reporting Standard (IFRS 17) are issuing subordinated bonds, but there is a high possibility of negative margins in the future." He continued, "Considering the overall situation, it is clear that insurance companies' ability to generate profits has reached its limit."

Ahn Cheol-kyung, President of the Korea Insurance Research Institute, is being interviewed on the 3rd at the Korea Insurance Research Institute in Yeouido, Seoul. Photo by Kang Jin-hyung aymsdream@

President Ahn emphasized, "It is clear that the era of population decline and low interest rates is unfavorable for insurance company management, but if high loss ratios lead to not selling indemnity health insurance, the social costs will be borne by someone else, causing even more serious problems."

He said that the recent cases of foreign insurance companies pursuing 'exit from Korea' are also in line with this trend. President Ahn stressed, "Financial authorities and the government should closely monitor the withdrawal movements of foreign insurers from the domestic market," adding, "This signals that making money in the Korean market is becoming impossible."

He continued, "The situation is the same for domestic insurers, and telling them not to make profits means giving up the social security role of private insurance," arguing, "In many cases where government finances fall short, the social safety net function of insurance must be properly recognized."

He also forecasted, "Looking at Europe, there are cases where the government alone struggles to maintain social security systems, so the role of private insurance will become more important in the future."

Ahn Cheol-kyung, President of the Korea Insurance Research Institute, is being interviewed on the 3rd at the Korea Insurance Research Institute in Yeouido, Seoul. Photo by Kang Jin-hyung aymsdream@

'Sell First' Style External Growth Competition Must Be Reflected Upon... Efficiency Through Sound Management Needed

He continued with harsh criticism of insurance companies. President Ahn said, "One thing is clear: insurance companies must also reflect on their past mistakes," advising, "They should improve incomplete sales caused by external growth competition focused on 'sell first' and excessive business expenses, and downsize through sound management." He warned that insurance companies obsessed with external growth competition will eventually face a boomerang effect.

In particular, President Ahn emphasized the need to quickly shift from a business structure that sold 'products' in the past to a high value-added industry that provides 'products + services' together.

He said, "We need to prepare ways to provide services that match product characteristics, such as health insurance and healthcare, corporate insurance and risk management, pension insurance and financial management services, fire insurance and risk consulting," predicting, "Consumers were satisfied with products in the past, but in the future, they will become accustomed to using additional services."

President Ahn also introduced, "To check the level of domestic financial planning services, I recently received financial planning together with research institute staff," adding, "Companies already provide financial planning as a compensation plan to executives, and it would be much easier for insurance companies to provide these services than banks or securities firms."

He conveyed that the role of insurance company CEOs is important in suppressing the launch of products that do not have proper profitability during this process.

Considering Multiple Aspects of Digital Transformation... Must Reflect Consumer Interaction Levels

He proposed, "The scope of insurance should be expanded to provide a safety net for real life," and suggested, "If we have enjoyed easy opportunities so far, we now need to seek niche markets."

Regarding the rapid digital transformation of insurance companies following the COVID-19 pandemic, he advised considering it from multiple perspectives. President Ahn said, "Claims adjustment, product development, and customer contact are rapidly digitalizing," but he forecasted, "For sales channels, it is not easy to switch complex insurance requiring design, such as whole life insurance or pension insurance, to digital channels, so considerable time is needed."

He evaluated, "Insurance companies need strategies to adjust the pace of digitalization by department," adding, "Indiscriminate digital preemption strategies that do not consider consumer interaction levels are inefficient." However, he added that efforts must continue in regulatory and supervisory areas to foster an innovative financial environment.

He also advised that corporate insurance agencies (GA) recently subjected to strong sanctions for incomplete sales should manage their soundness independently. President Ahn diagnosed, "Large GAs have received significant investments from funds, often offering very high interest rates or conditions for listing," adding, "If these conditions are not met due to poor business conditions and investments are withdrawn, new risks will emerge."

He expressed concern that GAs attracting investments may choose reckless sales to expand their organizations, and that confusion in the GA ecosystem will affect the entire insurance ecosystem, ultimately causing problems in consumer protection.

President Ahn also revealed plans to support the Korean insurance market advancing to a world-class 'K-Insurance Service.' He stated, "Auto insurance and indemnity health insurance are already at a global level compared to major countries," and added, "We will actively engage in comparative research with overseas cases to maintain a balanced perspective."

Interview by Asia Economy Financial Department Head Lee Cho-hee