With the absorption merger of digital non-life insurer Carrot General Insurance into HANWHA GENERAL INSURANCE, the much-anticipated innovation has fallen through. Voices in the insurance industry say regulators should apply differentiated rules that account for the characteristics of digital insurers, as in Europe and Japan. Under the current regulatory framework, digital insurers are pressed to raise capital and have no room to invest in innovation.
According to the insurance industry on the 2nd, two of Korea's five digital insurers have given up on digital. Carrot General Insurance was absorbed into Hanwha General Insurance, and Hana General Insurance is strengthening face-to-face channels, making it hard to keep the digital-insurer label. The remaining digital insurers are Kakao Pay General Insurance, Kyobo Lifeplanet, and Shinhan EZ General Insurance.
Investment in insurtech, which combines information technology (IT) with insurance, is also declining. An industry official said there used to be around 10 investment deals announced each year, but since 2023, investment has dried up. Digitalization is accelerating across finance, including mortgage loans, but in the insurance market, face-to-face channels centered on corporate insurance agencies (GA) are strengthening. According to the Financial Supervisory Service, based on first-year premiums last year, the share of non-face-to-face channels (CM) was 0.2% for life insurance and 19.2% for non-life insurance. Most of the non-life non-face-to-face channel is auto insurance.
Uniform application of regulations is cited as a key reason digital insurers are struggling. Applying rules designed for large insurers to new digital insurers—which have low fixed costs but high operating expenses—means their burden to raise capital is relatively heavier.
A prime example is the accounting treatment of digital-related intangible assets such as software and development costs. Digital insurers must invest tens of billions of won solely in system development to build non-face-to-face channels. But digital-related intangible assets are treated as expenses rather than assets, offering no help in calculating the key solvency metric, the risk-based capital ratio (K-ICS). Digital insurers have to invest hundreds of billions of won in IT infrastructure, raise additional capital, and still manage K-ICS. The more they invest, the more their capital-raising burden grows.
Another problem cited is that digital insurers cannot leverage parent-company resources. Under the Insurance Business Governance Act and other rules, concurrent positions by executives and employees are prohibited. In reality, they cannot even share the parent company's IT systems, let alone personnel. Without support for even basic personnel and technology, investing in generative artificial intelligence (AI) or data platforms is out of the question.
Industry voices are calling for regulations tailored to digital insurers. Proposals include easing the application of K-ICS, prompt corrective actions, and the standard for operating expense variance risk amounts. There is precedent, such as when internet-only Toss Bank was established and, for three years, the less stringent Basel I applied instead of Basel III.
Europe and Japan apply proportional regulation. In Europe, small and simple insurers with annual gross written premiums of up to €100 million (about 150 billion won) and technical provisions of up to €1 billion (about 1.5 trillion won) are subject to relaxed rules under the Solvency II regime. Even smaller insurers are exempt from Solvency II. Japan has introduced an economic-value-based solvency regime and applies proportional regulation to small insurers.