[Population Decline Hits Industry] Life Insurers' Storerooms Empty... Struggling for a Turnaround with Long-Term Care Business

Decrease in New Life Insurance Contracts Due to Population Decline
Breakthrough Through Long-Term Care Business...Policy Support Poor Compared to Japan
Regulatory Relaxation Needed, Including Allowing Rental Care

The life insurance sector has been the hardest hit in the financial industry due to demographic changes caused by low birth rates and an aging population. As the number of insurance policyholders decreases, the premiums collected are steadily declining, while the insurance payouts are increasing due to longer life expectancy. Attempts to launch new businesses are hindered by various regulations, as stricter standards are applied to financial companies compared to other industries.

Shrinking Treasury of Life Insurers

As of 2022, the new contract amount of domestic life insurers was KRW 266.4427 trillion, down 31.6% from KRW 389.489 trillion in 2014. A new contract refers to an insurance contract established through the policyholder's application during the business year. It is a key indicator of an insurer’s sales capability. When new contracts decrease, the life insurer’s premium income also declines, negatively affecting asset management based on premium revenue in the long term. New contracts have maintained a monthly average of KRW 20 to 30 trillion for over 20 years. Last year, it barely held at KRW 20 trillion per month, but it is highly likely to drop to the KRW 10 trillion range soon. The new contract rate, which is the proportion of new contracts to the total contract amount, fell from 17.8% in 2014 to 10.1% last year.

Due to population decline and fewer new contracts, the growth rate of premium income collected from customers is also slowing. Premium income of life insurers was KRW 110.5753 trillion in 2014 and increased by only 20% to KRW 132.6837 trillion in 2022. Meanwhile, insurance payouts to customers for death, injury, and policy maturity rose from KRW 62.2511 trillion to KRW 134.3677 trillion, an increase of 115.8%. Over the past eight years, the amount paid out by life insurers was 5.8 times greater than the amount received.

The increase in insurance payouts is closely related to aging. As medical technology advances and life expectancy rises, the timing of customers’ deaths is delayed, requiring continuous payment of pension insurance benefits. According to the 10th Experience Life Table applied to insurers this month, the average life expectancy is 86.3 years for men and 90.7 years for women. Thirty-five years ago, in the first Experience Life Table of 1989, the average life expectancy was 65.65 years for men and 75.65 years for women. The elderly have higher rates of illness, injury, and death compared to younger people, leading to increased insurance payouts. An industry insider explained, "The receipt of personal pensions subscribed for retirement in the mid-1990s is now becoming active. Designing more favorable products for customers to attract younger generations and those indifferent to insurance is also one of the reasons for the increase in insurance payouts."

Seeking Breakthroughs in the Care Industry

A family is visiting a resident at a nursing hospital located in Bucheon, Gyeonggi Province.

Life insurers, struggling to resolve profitability issues, have begun searching for new business opportunities. They are knocking on the door of the silver industry, aiming to turn the aging crisis into an opportunity. The domestic silver industry market is expected to grow to KRW 168 trillion by 2030.

Among the silver industry sectors, large life insurers are most focused on nursing facilities and silver town projects. According to statistics from the Korea Health Industry Development Institute, the domestic nursing market grew from KRW 2.9 trillion in 2012 to KRW 10 trillion in 2020, with an average annual growth rate of 16.6%. As Korea approaches becoming a "super-aged society" in 2025, where one in five people is aged 65 or older, the related market is expected to expand further.

KB Life Insurance is the leading company among life insurers. In October last year, KB Life Insurance became the first major life insurer to enter the nursing business by acquiring KB Golden Life Care from its affiliate KB Insurance. KB Golden Life Care operates nursing facilities (Wirye and Seocho Villages) and day and night care centers (Gangdong and Wirye Daycare Centers). KB Life Insurance established the Future Innovation Headquarters at the end of last year and created a Senior Business Promotion Department under it, focusing its capabilities on the nursing business. In December last year, it also began the silver town business by selling senior welfare housing, Pyeongchang County.

Shinhan Life is also actively developing its nursing business this year. In January, it renamed its healthcare subsidiary Shinhan Cube On to Shinhan Lifecare and launched it as a dedicated senior business subsidiary. At the end of last year, Shinhan Life participated in a paid-in capital increase of Shinhan Cube On, investing KRW 40 billion. With secured investment funds, Shinhan Lifecare recently completed the land purchase process for its first senior nursing facility, Hanam Misa Branch 1. Scheduled to open next year, the first branch will accommodate 60 to 70 people and operate as a premium urban facility mainly with single and double rooms. It also plans to operate a pilot daycare center within the year, focusing on establishing urban nursing facilities in Seoul. Shinhan Life has also purchased land for a senior residential complex in Eunpyeong-gu, Seoul, aiming for completion in 2027.

Samsung Life Insurance is weighing entry into the nursing business by establishing a task force (TF) related to senior living business within its planning office through an organizational restructuring at the end of last year. Leveraging its experience operating Samsung Noble County, a nursing facility within the Samsung Group, it plans to expand elderly care services. NH Nonghyup Life Insurance is also preparing for entry into the nursing industry by establishing a New Business Promotion Team and New Business Promotion Part within its management planning department at the end of last year.

Japanese Insurers, Having Experienced Super-Aging Earlier, Turn Around with Nursing Business

Japan is a super-aged society with 29.1% of its total population aged 65 or older, the highest level worldwide. Japanese insurers, who experienced aging and insurance market saturation 20 years ahead of Korea, have opened new paths through the nursing business.

The leading company is Sompo Holdings, one of the big three non-life insurers. Sompo Group established a nursing subsidiary, Sompo Care, in 2015 and acquired Message, the second-largest nursing market share, and Watami, the sixth-largest, merging them into Sompo Care in July 2018. Sompo Care is the largest nursing facility operator in Japan, currently running about 30,000 nursing facility rooms nationwide. Sompo Care, which was in deficit in 2016, turned profitable within a year. Its sales grew 30.9% over five years, from JPY 123.8 billion in 2018 to JPY 162 billion last year. It maintains an operating profit margin of 6-8% annually.

Japan’s nursing market rapidly expanded after the introduction of public long-term care insurance in 2000. This insurance, similar to Korea’s Long-Term Care Insurance for the Elderly, covers people aged 65 and older. As of 2022, Japan’s nursing market size is JPY 100 trillion, ten times that of Korea. With the market’s growth, Japanese insurers are actively entering this business. Nippon Life, Japan’s largest life insurer, entered the nursing business last November by acquiring Nichii Holdings, the top nursing company by sales. As of January, seven Japanese insurers have entered the nursing industry.

Korean Nursing Business Still in Its Infancy... "Need to Establish Institutional Foundations"

The reason Japanese insurers could actively enter the nursing industry lies in government policy support. In Japan, private insurers can operate nursing businesses by leasing without owning land or buildings. In contrast, under Korea’s Enforcement Rules of the Elderly Welfare Act, nursing facility operators must own land and buildings or lease public land to build nursing facilities for 10 or more people. The cost burden is significant, and finding suitable nursing facility sites in urban areas is difficult.

The government is preparing measures to gradually open the door by allowing leased nursing facility construction for certain areas and non-profit corporations of a certain scale. However, experts advise that as Korea approaches a super-aged society next year, the government should actively open doors to private companies to address nursing facility saturation and poor infrastructure.

Professor Seo Ji-yong of Sangmyung University’s Business Administration Department said, "Along with long-term land and building leases, various forms of business support such as tax benefits are needed. If competition is activated, problems like certain nursing facilities setting high prices can be alleviated." An Cheol-kyung, president of the Korea Insurance Research Institute, added, "We should consider who can operate nursing facilities well and contribute to the national economy, rather than approaching it as a special privilege for insurers. The issue is not resolved simply by allowing leases; policy support such as deregulation is needed to ensure actual profitability within that framework."