Expansion of 'Je3 Boheom'... Diversifying Product Structures
"Advantageous under IFRS17"... Actively Promoting Whole Life Insurance Sales
[Asia Economy Reporter Minwoo Lee] Insurance companies are restructuring their product portfolios with the introduction of the new accounting standard (IFRS17). They are actively responding from the beginning of the new year by entering the third insurance sector, which covers accident, health, and disease, and by lowering premiums to increase the profitability of whole life insurance products that are highly valued under the new accounting standard.
Choosing 'Third Insurance' as the First Product of the Year... Restructuring Product Portfolios
According to the industry on the 12th, Hyundai Marine & Fire Insurance recently launched the 'Perfect Care Nursing Insurance,' which focuses on long-term care and dementia coverage. They chose third insurance, which can be handled by both non-life and life insurance companies, as their first product of the new year. This product is the first in the industry to expand long-term care coverage beyond the existing five grades to include the ‘Cognitive Support Grade’ newly established in 2018. It covers the same area as the social welfare system’s Long-Term Care Insurance for the Elderly.
Additionally, a lower-premium subscription type was introduced. By creating a 'policy period extension type' whole life insurance, customers can subscribe with a maturity age of 85, and if they receive a long-term care grade before maturity, the insurance period is extended up to age 100. The premium is 50% cheaper compared to a 100-year maturity for a 50-year-old subscriber. The payment methods are also divided into 5, 7, 10, and 20-year payment plans.
Hyundai Marine & Fire Insurance is not the only insurer to launch third insurance as the first product of the new year. Hanwha Life, a life insurance company, launched the 'Number One Accident Insurance 2301' at the beginning of the year, which includes 47 types of riders. This product also includes a car accident injury treatment rider, which is mainly included in non-life insurers’ driver insurance. NH Nonghyup Life also launched the ‘Baeksepalpal NH Health Insurance,’ which covers the four major diseases of brain, heart, liver, pancreas, and lungs, from the first business day of the new year.
The fact that insurance companies, especially life insurers, are launching third insurance products is interpreted as a move to prepare for IFRS17. They are diversifying their product portfolios by reducing the proportion of savings-type insurance, which was their main product, and increasing third insurance products. Savings-type insurance is recognized as a liability under IFRS17 and is evaluated at market value rather than cost, making it highly volatile depending on market interest rate movements. Also, since banks restrained competition on deposit interest rates during the interest rate hike in the second half of last year, funds flowed into savings-type insurance, so it seems they judged that adjustment was necessary. According to the Life Insurance Association, the number of savings-type insurance sales in November last year was 48,255, significantly higher than 27,424 in September and 22,425 in October of the same year.
Active Whole Life Insurance Sales... "Favorable for CSM"
Life insurers are also actively promoting whole life insurance sales from the beginning of the year. Dongyang Life Insurance introduced new products such as the (Non-Participating) Guardian Angel Simple Thrifty Plus Whole Life Insurance, and Kyobo Life Insurance launched the '(Non-Participating) Kyobo New Secure Whole Life Insurance,' lowering premiums. Dongyang Life lowered the surrender refund during the premium payment period to 50% of that of general products but reduced premiums by up to 15%. Similarly, Kyobo Life lowered the surrender refund but reduced premiums by up to 8%.
The reason for actively selling whole life insurance is to secure Contractual Service Margin (CSM), a concept newly introduced from IFRS17. CSM is a concept that predicts insurance profitability in advance. For example, in a single premium 300,000 KRW cancer insurance, if the insurer expects a 10% cancer diagnosis rate and the insurance payout is 1,000,000 KRW, the CSM is 300,000 KRW minus the expected cost of 100,000 KRW (cancer insurance payout × diagnosis rate), resulting in 200,000 KRW. Whole life insurance is classified as a product with a high CSM. An insurance industry official explained, "Since this is the first year of IFRS17 implementation, we are particularly changing our portfolio to focus on protection-type insurance such as whole life insurance to manage performance."
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