Digital Sector Is No Joke... Digital Insurers Facing Deepening Losses

[Asia Economy Reporter Changhwan Lee] It has been revealed that the financial structure of digital insurance companies has deteriorated this year. Analysts say that because they mainly sell relatively inexpensive short-term insurance products and competition is intensifying, they are struggling to establish a profitable structure.

According to the Financial Supervisory Service on the 4th, Carrot General Insurance, a digital insurer, recorded a net loss of 14.6 billion KRW in the first quarter of this year, deepening the deficit compared to 12.4 billion KRW in the same period last year. The annual loss last year reached 65 billion KRW, and there is a possibility that the deficit will increase this year.

Another digital non-life insurer, Hana General Insurance, also turned to a loss of 5.4 billion KRW in the first quarter of this year from a profit of 1.6 billion KRW in the first quarter of last year, and Kyobo Lifeplanet Life Insurance increased its loss from 4.3 billion KRW to 4.5 billion KRW during the same period.

Digital insurance companies refer to firms that sell insurance products online or via mobile. Most do not have separate branches or insurance agents. Over 90% of total insurance contracts and premiums are sold through communication channels such as online, telephone, or mail, making them specialized telemarketing insurers.

Carrot General Insurance, launched in 2019 as a joint venture between Hanwha General Insurance, SK Telecom, and Hyundai Motor Company, was noted as the first digital insurer. Following that, in 2020, Hana Financial Group acquired The-K Non-Life Insurance and rebranded it as Hana General Insurance.

Technological advancements such as big data and fintech, along with the spread of non-face-to-face culture due to COVID-19, triggered the emergence of digital insurers. They primarily target the MZ generation (Millennials + Generation Z), who are familiar with digital culture. This generation tends to access insurance products more through digital channels like blogs, online cafes, and YouTube rather than face-to-face sales centered on agents.

Since they focus on the relatively young MZ generation as their main customers, a downside is that their product structure is concentrated on short-term insurance rather than long-term protection insurance. Their main products are mini-insurances such as auto insurance, travel insurance, and mobile phone damage insurance, which require annual renewal.

Moreover, since they started later than other insurers, they need to strengthen marketing to attract customers, resulting in relatively high marketing costs. In particular, Carrot General Insurance, which is experiencing significant losses, is aggressively marketing with TV commercials featuring actress Shin Min-a. Additionally, their premiums are relatively low, making it difficult to reach the break-even point.

The addition of new digital insurers is also a burden. Kakao Pay is preparing to enter the digital non-life insurance business in the third quarter, and Shinhan Financial Group is strengthening its digital insurance business by acquiring Cardif Non-Life Insurance. Especially, Kakao Pay General Insurance has officially joined the General Insurance Association and is preparing to start operations this month, which is expected to intensify competition within the digital non-life insurance sector.

Within the insurance industry, it is expected that digital insurers will expand into the long-term insurance market as it is difficult to generate profits with short-term insurance alone. They are anticipated to extend their reach into long-term insurance markets such as health insurance like cancer insurance, disease insurance, and whole life insurance to improve profitability.

An industry insider said, "Due to the nature of the insurance business, which requires attracting many customers, digital insurers inevitably incur losses in the early stages of market entry," but added, "If the losses persist longer than expected, they will seek long-term insurance markets or other alternatives."