Big Tech's First Entry into Insurance... How Far Will Kakao Sonbo Jump? (Comprehensive)

Financial Services Commission Grants Preliminary License for Kakao Sonhae Insurance's Insurance Business Operations

[Asia Economy Reporters Sunmi Park and Hyungil Oh] The preliminary approval of Kakao Insurance's insurance business has signaled a green light for the first entry of big tech (large information and communication companies) into the insurance industry. The announcement of a big tech insurer with solid platform competitiveness has made the existing insurance industry, which has focused heavily on face-to-face sales, highly alert.

According to financial authorities on the 10th, the Financial Services Commission granted preliminary approval for Kakao Insurance to operate an insurance business at its regular meeting the day before. This comes six months after Kakao Pay applied for preliminary approval to establish Kakao Insurance on December 29 last year. It is the first case of a big tech company entering the insurance business and the first time a new business operator, rather than an existing insurer, has received preliminary approval as a telemarketing-specialized insurer (digital insurer).

Kakao Insurance will be operated as a digital insurer with a capital of 100 billion KRW, with Kakao Pay and Kakao investing 60% and 40%, respectively. It can handle all types of non-life insurance except guarantee insurance and reinsurance. Due to the nature of digital insurers, there are restrictions requiring that more than 90% of total insurance contracts and premiums be solicited through communication means such as telephone, mail, and computer communication. However, with the expansion of financial non-face-to-face services and the ability to leverage Kakao's strong platform competitiveness, it is widely expected to bring new waves to the insurance industry. It is also highly likely to lead innovation in existing insurance products and distribution, driving overall changes in the insurance sector.

The Financial Services Commission, based on the Financial Supervisory Service's review of the licensing requirements under the Insurance Business Act, judged that Kakao Insurance meets all requirements including capital, business plan feasibility, and sound management. Furthermore, it was determined that Kakao Insurance could contribute to enhancing consumer benefits and promoting competition and innovation in the insurance industry through insurance services linked with Kakao Group's digital technology and platform.

Going forward, Kakao Insurance can apply for full approval from the Financial Services Commission after fulfilling requirements such as capital investment, hiring personnel, and establishing physical facilities within six months. This means that full-scale insurance operations could begin as early as the end of this year or by the first half of next year at the latest.

Kakao Insurance is expected to actively utilize Kakao's various platforms while aggressively targeting niche insurance markets. It is anticipated to focus on developing products that can cover blind spots in everyday life, such as DIY insurance involving consumer participation and platform-linked insurance. Examples include club and mobile phone damage insurance joined with acquaintances, Kakao Kids-linked child insurance, Kakao Mobility-linked taxi safety, bike, and designated driver insurance, and Kakao Commerce return insurance.

Additionally, there are advantages in enhancing convenience for subscription and claims through easy sign-up via KakaoTalk and Kakao Pay, simple claims through the platform, and rapid insurance payment review using artificial intelligence (AI). Consumer protection is also notable with services such as consultation and explanation via Kakao platforms and 24/7 consumer complaint response and handling using AI chatbots.

Insurance Industry on Edge with Launch of Big Tech Insurer

A financial authority official said regarding the preliminary approval, "It is expected to positively impact the revitalization of the general non-life insurance market, which was judged as a ‘concentrated market’ requiring competition promotion in the insurance industry competition evaluation conducted last February."

The insurance industry is visibly tense about big tech's first entry into insurance.

Although it may not immediately shake up the insurance industry, there is a belief that the emergence of a powerful big tech insurer backed by the Kakao platform could cause significant waves in the long term. There is also an expectation that Kakao Insurance's appearance provides an opportunity for the still underdeveloped non-face-to-face insurance channels to become more widespread. However, some view the growth potential as limited, anticipating that Kakao Insurance will initially focus on small-amount short-term insurance and automobile insurance, which can be easily distributed through the Kakao platform right after its launch.

A life insurance industry official said, "Kakao Insurance's focus on easily accessible, everyday life-related insurance shows confidence in its consumer friendliness," adding, "Since it combines services and insurance offered on existing platforms, it is expected to secure considerable influence." A non-life insurance industry official commented, "Since insurance has traditionally relied heavily on face-to-face sales, Kakao Insurance could create a new market through subscription methods and products that consumers have not experienced," but also noted, "While it may lead in online marketing for now, there are doubts about its long-term growth potential at the current level."