Ahn Cheol-kyung, Head of Insurance Research Institute, "CSM Performance Controversy... Need to Watch the Market"

"Focus on Improving Sales Channels at the Insurance Reform Meeting"
"Private Pensions Must Be Improved to Supplement Public Pensions"

"The recent controversy over inflated earnings in the insurance sector is a trial-and-error process occurring as the industry adapts to the new international accounting standard (IFRS17). Rather than regulations that excessively restrict corporate autonomy, institutional improvements are needed to allow market discipline to function."

On the 31st, Ahn Cheol-kyung, President of the Korea Insurance Research Institute, said this in an interview with Asia Economy. This was his opinion on the financial authorities hinting at institutional improvements after controversy arose that earnings were inflated during the accounting process related to the amortization of Contractual Service Margin (CSM) following the first quarter earnings announcement of insurance companies this year.

Ahn Cheol-kyung, President of the Korea Insurance Research Institute, is being interviewed by Asia Economy in the president's office at the Insurance Research Institute in Yeouido, Seoul. Photo by Jo Yong-jun jun21@

President Ahn likened the various noises surrounding IFRS17, introduced since last year, to "giving graduate-level problems to middle school students." He explained that it is difficult to evaluate Korea, which is only in the second year of adoption, by European standards that have undergone more than ten years of sufficient preparation. He said, "Korea has been preparing for IFRS17 for 10 years since 2013, but the macro environment, such as interest rates, at the time of preparation and adoption has changed significantly, causing earnings realization to unfold differently than expected. There is a need to improve the system in a way that market discipline can operate, such as forming consensus on earnings assumptions and drafting practical standards for assumptions."

The financial authorities are currently considering even the option of not applying discount rates for the equal amortization of CSM. Regarding this, President Ahn said, "It is necessary to consider a phased application plan, taking into account the impact on the industry," and added, "More importantly, it is necessary to strengthen internal controls within companies and disclose detailed information so that the objectivity and fairness of CSM assumptions can be verified, thereby accumulating market experience and checks."

Launch of Insurance Reform Council... "Focus on Improving Sales Channels as Top Priority"

On the 7th of last month, the financial authorities launched the 'Insurance Reform Council' aiming for the insurance industry's leap forward and innovation. The council will hold monthly meetings, prepare institutional improvement plans for each task by the end of this year, and announce the final reform plan around next year.

President Ahn plans to present improvement measures for 'sales channels' as a key agenda at the Insurance Reform Council. He expressed concern, saying, "Improving sales channel issues such as illegal scouting of agents, excessive competition in sales commissions, and incomplete sales is essential to guarantee the reliability and sustainability of the insurance industry. The market should not head toward an endless mudslinging fight." He added, "Sales channel issues cannot be solved by regulation alone due to market physiology; voluntary efforts by the industry are necessary."

Regarding insurance companies attempting separation of manufacturing and sales (Je-pan separation) and the rapid growth of General Agencies (GA), President Ahn said this is an inevitable trend due to changes in the industrial structure. He expects that if appropriate checks and balances are established between insurance companies manufacturing insurance products and GAs distributing them, consumer benefits will increase. He explained, "It has become more important to compare and explain multiple insurance products and find the product suitable for the consumer rather than detailed explanations of a single insurance product. Going forward, this consumer experience will be accumulated as manufacturer data, and the process of consumers developing loyalty to the company brand will create lifecycle management that will determine future profits." In this regard, Je-pan separation is expected to be a new opportunity even from the manufacturer's perspective.

Ahn Cheol-kyung, President of the Korea Insurance Research Institute, is being interviewed by Asia Economy in the president's office at the Korea Insurance Research Institute in Yeouido, Seoul. Photo by Jo Yong-jun jun21@

Deficit in Indemnity Insurance... "Active Response Needed Including Establishing Guidelines for Non-Covered Treatments"

Last year, the deficit in indemnity insurance was about 2 trillion KRW, increasing by approximately 440 billion KRW compared to the previous year. Regarding indemnity insurance, which suffers losses of several trillion KRW annually due to excessive non-covered treatments, President Ahn emphasized that management of non-covered treatments should be a priority in health coverage policy.

President Ahn said, "Non-covered insurance claims in indemnity insurance tend to be concentrated on specific items such as injections and manual therapy," and added, "Medical associations and the Ministry of Health and Welfare should establish treatment appropriateness guidelines for these treatment items and reflect them in regulations, requiring a more proactive response than currently." He further explained, "By sufficiently coordinating opinions between the Ministry of Health and Welfare and financial authorities to improve the linkage between public and private insurance coverage areas, it will be possible to suppress benefit leakage caused by inadequate non-covered management and the balloon effect of non-covered treatments."

Ahn Cheol-kyung, President of the Korea Insurance Research Institute, is being interviewed by Asia Economy in the president's office at the Korea Insurance Research Institute in Yeouido, Seoul. Photo by Jo Yong-jun jun21@

"Limits of Public Pensions... Need to Expand Private Pensions"

President Ahn is also very interested in the recent pension reform issues, a hot topic in the political sphere. He holds the view that stable retirement cannot be guaranteed by public pensions with low income replacement rates, so private pensions should be activated. Several seminars on this topic have been held from last year through this year.

President Ahn considers frequent lump-sum early withdrawals during the receipt of retirement pensions undesirable. He said, "It is necessary to consider even mandating the conversion of retirement pensions into annuity products," and added, "Private pensions need institutional improvements such as extending the pension receipt period comparable to the National Pension and providing tax benefits." He further noted, "Insurance companies have strengths in stably managing longevity risk, so they should develop various products focusing on the pension receipt period rather than the asset accumulation period."

◆Career

▲ Born in 1963 ▲ Bachelor of Sociology at Yonsei University, Master of Business Administration at Yonsei University, Ph.D. in Business Administration (Insurance and Transportation major) at Soongsil University ▲ Vice President, Director of Research Coordination Office, Director of Financial Policy Office at Korea Insurance Research Institute ▲ Member of Financial Public Enterprise Budget Review and Management Evaluation Committee at Financial Services Commission, Member of Insurance Subcommittee of Financial Industry Development Council, Member of Administrative Guidance Review Committee ▲ Advisor to Insurance Subcommittee of Financial Supervisory Service Advisory Committee, Member of Insurance Supervision Innovation Task Force at Financial Supervisory Service ▲ Member of Insurance Reserve Management Subcommittee at Korea Post ▲ Director of Korea Insurance Academic Society, Korea Risk Management Society, Korea Financial Planning Society ▲ Current President of Korea Insurance Research Institute (since April 2019)