[Why&Next] IFRS17 1 Year... Fierce Competition Between Life and Non-Life Insurance Over Third Insurance

Industry Leader Samsung Life Launches Full-Scale Strengthening of Health Insurance
Whole Life Insurance Faces Limits... Actively Competing in Third Insurance Sector

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With the introduction of the new accounting standard IFRS17, the business composition of insurance companies is changing. In particular, the life insurance industry is focused on finding new growth engines. As the decline of the core product, whole life insurance, becomes more apparent, they seem willing to engage in full-fledged competition with the non-life insurance industry.

Samsung Life Drives Health Insurance

According to industry sources on the 12th, life insurers are putting effort into selling third insurance products. Third insurance combines characteristics of both non-life and life insurance. Typical examples include accident, disease, nursing care, and health insurance. Samsung Life, the industry leader, is especially putting in strong efforts. They have even set a bold goal to rank within the top three in the health insurance market, which is dominated by non-life insurers. It is reported that they have included health insurance market share instead of protection market share in their sales organization performance indicators.

Until now, their sales strategy mixed whole life insurance and health insurance, but they have now shifted decisively toward health insurance. This is interpreted as a decision considering the growth limitations of whole life insurance. As of the third quarter of this year, Samsung Life’s new contract Contractual Service Margin (CSM) from health insurance reached 941 billion KRW. Although this is still below the protection insurance new contract CSM of 2.606 trillion KRW by Samsung Fire & Marine Insurance, the number one in the non-life sector, and 2.125 trillion KRW by DB Insurance, it is not far behind Hyundai Marine & Fire Insurance’s 1.3105 trillion KRW and Meritz Fire & Marine Insurance’s 1.236 trillion KRW.

Profitability has actually surpassed others. The cumulative CSM conversion multiple for health insurance as of the third quarter this year is 26.9 times, the highest level across both life and non-life insurance. Samsung Fire & Marine Insurance recorded 18.6 times, and DB Insurance 18.5 times. The CSM multiple indicates how many times the existing premium revenue expands when converted into CSM. A higher multiple means the insurer holds more profitable insurance products.

Feeling the Limits of Whole Life Insurance... Life and Non-Life Clash in Third Insurance

Whole life insurance has long been a cash cow product exclusive to life insurers, but it has gradually lost its appeal due to demographic changes. The product structure, which pays insurance benefits to surviving family members after death, fails to attract consumers in an era characterized by an increase in single-person households and a sharp decline in birth rates.

According to the Financial Supervisory Service, the new contract amount for whole life insurance by life insurers steadily maintained the 80 trillion KRW level, increasing from 81.2029 trillion KRW in 2018 to 85.4047 trillion KRW in 2020. However, it sharply dropped to 53.906 trillion KRW the following year. Last year, it fell 42.5% compared to 2020, down to 49.1315 trillion KRW. Although it somewhat recovered to 35.2821 trillion KRW in the first half of this year, this is interpreted as the result of insurers rapidly increasing sales of short-term payment whole life insurance to boost the new profitability indicator, Contractual Service Margin (CSM).

The industry evaluates that such a sales strategy is unsustainable. The financial authorities have already imposed restrictions on the sale of short-term payment whole life insurance, mindful of incomplete sales practices. Moreover, the nature of whole life insurance itself is challenging. It requires paying insurance benefits not only when losses occur but also when policyholders surrender or die after maturity. While it may help increase scale in the short term, it has limitations in strengthening the insurer’s fundamentals.

Ultimately, life insurers have no choice but to focus on third insurance products such as health insurance. According to a survey conducted by the Korea Insurance Research Institute in the second half of this year targeting 42 CEOs of various insurance companies, life insurance CEOs identified whole life insurance (38.0%) and health insurance (35.7%) as their main products for the next one to two years. Notably, the percentage choosing health insurance increased by about 6 percentage points from 29.5% last year.

An industry insider explained, "Recently, life insurers are launching new types of products that combine whole life insurance and health insurance. With Samsung Life, which has greater assets and potential than non-life insurers, entering the market in earnest, competition in performance will become even fiercer."