Insurance companies are turning their attention to non-insurance businesses beyond the traditional profit-generating methods of 'insurance product sales' and 'investment.' They are diversifying their revenue streams by introducing new services ranging from nursing care businesses to healthcare and platform businesses.
Traditionally, insurance companies' profits consist of underwriting profits and investment income. Insurance companies sell various insurance products to customers, who pay premiums. The insurance companies pool these premiums to form a fund, which they invest in various financial products to generate returns. Investment targets include stocks, bonds, real estate, and loans.
However, due to low birth rates and an aging population, it is becoming increasingly difficult to sustain underwriting profits in the future. As the younger population decreases, the number of new insurance policyholders declines, while the amount of insurance payouts increases. Consequently, insurance companies have increasingly relied on investment income, a trend expected to continue.
According to the insurance industry, in the first quarter of this year, the average return on assets (ROA) of 39 domestic life and non-life insurance companies was 2.62%, which is even lower than the Bank of Korea's base interest rate of 3.5%. This phenomenon is more severe among non-life insurers. Breaking it down, 22 life insurers showed an average ROA of 3.18%, while 17 non-life insurers recorded 1.9%.
An industry insider explained, "Due to the high-interest rate environment, real estate market values have significantly declined, reducing real estate income. Insurance companies have portfolios mainly composed of government and public bonds, but as interest rates rise, bond prices fall, leading to decreased returns." The ongoing delay in interest rate cuts creates uncertainty, making asset management challenging.
In response, insurance companies are exploring new businesses in non-insurance sectors beyond insurance and asset investment. For example, digital non-life insurer Carrot General Insurance secured a project to build a driving habit-linked insurance (BBI) solution for Indonesia's Lippo General Insurance, creating a new non-insurance revenue base. This project involves establishing various systems necessary for Lippo General Insurance to introduce BBI auto insurance products in Indonesia.
Domestically, KB Life Insurance became the first insurer to start a nursing care business after receiving approval to acquire 'KB Golden Life Care' last year. The nursing care business has emerged as a growth area in the aging society, and this year Shinhan Life also launched 'Shinhan Life Care,' a specialized nursing care subsidiary. Other insurers, including NH Nonghyup Life, have also announced plans to enter the nursing care business.
Some insurers are venturing into healthcare businesses. KB Insurance has already identified healthcare as one of its core new businesses and established 'KB Healthcare' in 2021. Samsung Life Insurance recently collaborated with sleep tech company A-Sleep to introduce a sleep analysis service on the comprehensive health management platform 'The Health,' signaling active insurer participation in the healthcare sector.
According to the Korea Insurance Research Institute, such non-insurance business expansion by insurers first appeared in Japan, which experienced low birth rates and aging earlier than South Korea. Researcher Kang Yoon-ji explained in a report this month, "As the amount of life insurance contracts in Japan gradually declines, insurers are shifting their business strategies centered on death coverage to strengthen healthcare, childcare support, and aging-related businesses."
For example, Sumitomo Life has set a goal to strengthen areas beyond life insurance and began offering health promotion programs as standalone services separate from insurance contracts last year. From this year, it plans to implement corporate services related to infertility treatment. Dai-ichi Life announced in its 2021-2023 mid-term management plan that it would expand non-insurance business areas in the domestic market to respond to low birth rates, aging, and digitalization.
However, there are suggestions that expanding non-insurance businesses too far from the core business could cause adverse effects, requiring delicate strategies. Professor Seo Ji-yong of Sangmyung University said, "The more diversified the business, the more personnel are allocated, which may impact the core business, potentially leading to a situation where the cost outweighs the benefit. Instead of simply expanding and diversifying businesses, insurers should consider leveraging their data and expertise."
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