[The Golden Age of Non-Life Insurers]②Even in Tough Economic Times... Non-Life Insurers' Revenue Streams Remain Strong

Restrictions on Over-Treatment Expected to Benefit Auto Insurance
Growth Potential Up for Intangible Assets and Cyber Insurance

As domestic and international economic uncertainties remain high this year, there are forecasts that it will be difficult for non-life insurance companies to achieve record-breaking performance like last year. Nevertheless, with institutional measures in place to prevent excessive treatment in car insurance accidents, they are expected to perform reasonably well compared to life insurance companies. Additionally, steady demand in new insurance sectors such as cybersecurity, eco-friendly initiatives, and the metaverse (expanded virtual world) is anticipated to help find new growth engines.

According to the industry on the 11th, the insurance sector expects that non-life insurers will find it difficult to achieve as strong results as last year. However, the gap with life insurers is expected to be maintained. It is analyzed that the reversal phenomenon, where non-life insurers with assets less than half the size of life insurers surpass them in net profit, will continue for the time being.

An industry insider explained, "The domestic and international economic environment is the same for both life and non-life insurers. Non-life insurers, which have many future growth opportunities, are naturally advantageous, and the auto insurance loss ratio (the ratio of claims paid to premiums received), which was perceived as a temporary boom last year, may not rise as much this year due to the introduction of new systems."

In fact, the strong performance last year was largely influenced by improvements in the auto insurance loss ratio. This was because the number of accidents decreased as car usage declined due to COVID-19. In 2019, before COVID-19, the auto insurance loss ratio was 92.9%, but it dropped to 81.2% last year. The industry generally considers an appropriate loss ratio where insurers do not incur losses to be between 78% and 82%. Therefore, there are forecasts that the loss ratio will rise again this year as the COVID-19 effect disappears.

However, the situation is somewhat different from the past. The authorities have reformed the system to prevent excessive treatment of minor injury patients in car accidents. The Financial Supervisory Service applied a new standard auto insurance policy from January this year. By setting compensation standards for minor injury patients, long-term excessive treatment has been effectively prevented. Since unnecessary insurance payouts have been curbed, there are expectations that the loss ratio will not rise sharply. Lee Hong-jae, a researcher at Hyundai Motor Securities, said, "Although non-life insurers have lowered premiums this year, the effect of the system improvement related to minor injury patients is not a one-time event. While an increase in the auto insurance loss ratio is inevitable this year, the extent will be better than the initial market concerns."

It is true that auto insurance and indemnity medical insurance are treated almost like 'public goods,' making it difficult to escape government pressure on price control. Nevertheless, there is an analysis that non-life insurers still have some growth potential. First, for corporate insurance such as group insurance for employees, large liability insurance, and loss insurance, it is relatively easy to reflect inflation in premiums. It is also somewhat easier to develop new products. During the COVID-19-induced economic downturn in 2021, European non-life insurers achieved significant growth in cybersecurity insurance, eco-friendly energy transition insurance, and insurance related to intangible assets such as NFTs, the metaverse (expanded virtual world), and virtual assets.

Shin Byung-oh, a partner at Deloitte, said, "This year is especially the right time for non-life insurers to transform the small business insurance market through new insurance products and various services. Beyond product innovation, they can maximize the potential of various technologies from artificial intelligence (AI) to cloud computing to improve pricing accuracy, claims management, and operational efficiency."