[Reporter’s Notebook] The Long Road Ahead for Insurance Innovation

In June of last year, KakaoPay Insurance introduced a groundbreaking travel insurance product. It refunds 10% of the premium paid if the insured returns safely without any accidents, a method unprecedented in the traditional property and casualty insurance system where compensation follows only after a loss occurs. Now, one year after its launch, this product has surpassed 1.3 million subscribers and gained immense popularity. Subsequently, competitors have introduced similar products, expanding consumer benefits and choices.

However, the recent insurance reform council led by financial authorities has put the brakes on this product category. The insurance reform council is a consultative body launched last month by financial authorities along with academia, research institutes, and associations to promote 'innovation' in the insurance industry. The authorities viewed this product as potentially violating the fundamental principles of property and casualty insurance and feared it could trigger excessive competition among insurers over refunds. If the product fails the ongoing appropriateness evaluation by the authorities, such products will no longer be allowed in the future.

Looking at the recent actions of the authorities overseeing the insurance industry, their attitude toward innovative products is considerably conservative compared to other financial sectors like banking and cards. In the card industry, after Hana Card introduced free currency exchange and overseas payment and withdrawal fee waivers (Travelog) in 2022, other card companies followed with similar services. Recently, internet banks have also joined in, enriching consumer benefits even further. It has become an era where people no longer exchange cash when traveling abroad. Internet banks have played the role of a 'catfish' by promoting competition with traditional banks through innovative ideas such as group accounts and refinancing low-interest mortgage loans.

However, in the insurance sector, many products or services introduced in the first half of this year were abruptly canceled due to pressure from the authorities. In January, KDB Life Insurance withdrew its 'No-Underwriting Our All Supporter Whole Life Insurance' less than a week after launch. The refund rate for short-term whole life insurance at life insurers fell back to the 120% range. KB Life Insurance had planned to launch a whole life insurance product linked to 'priority admission to elderly care facilities,' but the Ministry of Health and Welfare blocked it. As regulations continued, sales teams even used the 'closing soon' warnings as a marketing tactic to create urgency.

Of course, not all products introduced by companies can be allowed without scrutiny. It is the role of the authorities to intervene actively if market order is disrupted. However, if companies’ voluntary participation and consumer benefits are guaranteed, wouldn’t it be better to loosen the reins a bit compared to now? Since the market effects are still unknown, if the atmosphere forces companies to discreetly discard products they painstakingly developed at the slightest cough from the authorities, innovative ideas will hardly emerge. Travel insurance that refunds premiums in case of no accidents deviates somewhat from the basic purpose of property and casualty insurance. Yet, on the other hand, it also has a positive effect of reducing the moral hazard prevalent in the insurance industry. If such ideas are not viewed cynically but accepted constructively, corporate creativity will flourish even more.

Earlier this year, the financial authorities launched an insurance comparison and recommendation platform starting with auto insurance under the banner of ‘innovative finance.’ Unlike the deposit and loan comparison platforms in the banking sector that received great consumer response, this platform has seen poor performance. This was because individual insurer websites offered cheaper rates due to failed premium rate adjustments. To reverse the trend, the authorities rushed to launch pet insurance on the comparison platform by April this year, but it was delayed until July due to unresolved disagreements among insurers. From the second half of the year, rather than focusing on superficial innovation, why not embrace innovation that supports financial companies in expressing their creativity?