"Demand Declines and Uncertainty Persists... Insurance Industry Growth Slows Next Year"

Decline in New Insurance Demand... Need to Find New Growth Areas
Uncertainties Persist in IFRS17, Funding Rates, and Real Estate Market

Image source - Getty Images Bank

There is a forecast that the growth of the insurance industry will slow down next year. This is because new demand is shrinking, and investment volatility is expected to increase due to ongoing domestic and international uncertainties.

Sangyong Han and Seokho Lee, research fellows at the Korea Institute of Finance, made this assessment about the insurance industry next year at the 2023 Financial Trends and 2024 Outlook Seminar held on the 7th at the Bankers' Hall in Jung-gu, Seoul.

First, in the case of life insurance, while the expansion of sales of high-profit protection products is positive, growth is expected to stagnate due to a decrease in sales of savings-type insurance, intensified competition in the retirement pension market, and a contraction in demand for variable insurance caused by financial market instability.

A similar trend is expected for non-life insurance. Growth in long-term insurance and general insurance is a positive factor, but new insurance demand is expected to decline due to economic slowdown and increased household debt. Additionally, growth is expected to slow as pressure to further reduce automobile insurance premiums increases.

Profitability itself is analyzed to improve slightly. For non-life insurance, profitability indicators such as Contractual Service Margin (CSM) amortization income introduced under the new accounting standard IFRS17 are expected to increase, and investment operating profit is expected to be positive. However, due to increased use of medical services, increased vehicle operation, and automobile insurance premium reductions, profitability is expected to remain at a level similar to the previous year. For life insurance, portfolio adjustments focusing on protection insurance and improvements in asset management yields are evaluated positively. However, increased medical expenses leading to a decrease in gains from differences between expected and actual results, increased volatility in investment operating profit and loss due to the implementation of IFRS9 accounting standards, and increased capital procurement costs amid high interest rates are expected to result in profitability at this year's level.

Soundness is expected to be maintained or slightly decline. In life insurance, with the implementation of the new solvency indicator system, the Korea Insurance Capital Standard (K-ICS), liabilities are marked to market, reducing sensitivity of capital ratios to interest rate fluctuations. However, pressure to early redeem capital securities has increased, and due to rising funding costs and strengthened CSM calculation standards, soundness is expected to remain at last year's level or slightly decline. Non-life insurance is also expected to show a similar trend due to the impact of strengthened CSM calculation standards.

Key challenges for insurance companies next year include the second year of IFRS17 implementation, overseas real estate investment, real estate project financing (PF) loans, overseas expansion, insurance comparison recommendation platforms, and nursing care services. Researchers Sangyong Han and Seokho Lee emphasized, "As concerns about price declines and defaults in commercial real estate in the US and Europe are rising, it is necessary to closely prepare for investments in related fields," adding, "While continuously monitoring the soundness of PF loans, it is also essential to secure new growth engines such as the digital healthcare industry and nursing care service industry."