In the first half of this year, initial premiums for third-sector insurance at life insurers surged more than 200% year over year, overtaking non-life insurers. As the accounting profitability of whole life and savings-type policies has fallen, life insurers are now moving in earnest to target the third-sector segment that non-life insurers have focused on.
Third-sector insurance refers to policies that both life insurers and non-life insurers can offer. Representative examples include disease, accident, child, and health insurance. The initial premium is the first premium collected by an insurer after signing a contract with a subscriber and is used as a sales indicator for insurers.
According to the Korea Insurance Development Institute on the 28th, initial premiums for individual third-sector (non-death coverage) insurance recorded by life insurers in the first half of this year totaled 515.9 billion won, up 230.1% from a year earlier. During the same period, initial premiums for individual long-term protection-type insurance at non-life insurers (excluding driver and property) were 474.6 billion won, an 18.6% increase year over year. Not only is the growth rate for life insurers more than 10 times higher, but the initial premium amount itself also surpassed that of non-life insurers.
The insurance industry believes that since the introduction of the new International Financial Reporting Standard (IFRS 17) last year, life insurers have actively entered the third-sector market. Whole life and savings-type policies, which had been the flagship products of life insurers, are being classified as low-profitability products as the range of loss recognition has expanded under IFRS 17.
Under IFRS 17, if the low interest rate trend persists for whole life insurance, the present value of benefits to be paid increases, thereby enlarging the insurer's liability recognition. For savings-type policies, in most cases, unless the subscriber suffers a loss event and receives compensation, the structure is to hold to maturity and receive principal and interest back. If sales of savings-type policies increase and accounting losses rise, the risk-based capital ratio (K-ICS), a core indicator for insurers, also declines.
In the end, life insurers have little choice but to focus on third-sector insurance, which is more profitable than whole life and savings-type policies. The Korea Insurance Research Institute analyzed that when the risk-free rate is applied under IFRS 17, the insurance service margin rate for savings-type products is 1.2%. Among protection-type products, whole life posted a margin rate of 9.7%, and health insurance (third-sector) recorded 19.1%.
For non-life insurers, which have taken the third sector as a core business, competition is inevitable. According to the Korea Insurance Research Institute, as of 2022, the third-sector market share (based on written premiums) was 71.3% for non-life insurers and 28.7% for life insurers. While non-life insurers still hold the lead in the third-sector market, some say the landscape could change as life insurers ramp up their offensive.
Both life and non-life insurers need to focus on third-sector insurance to recover profitability. Through the first half of this year, the combined net income of 22 domestic life insurers was 333.4 billion won, down 8.5% from the prior year (364.6 billion won). Over the same period, non-life insurers' net income was 464.1 billion won, plunging 19.2%.
An insurance industry official said, "From the perspective of life insurers, it is difficult to generate accounting profit with whole life or savings-type policies, so focusing on third-sector insurance has become the market trend."