Non-life insurers are increasing the business expenses they put into attracting new subscribers. Competition with life insurers is intensifying in the third-sector insurance market. With non-life insurers' results continuing to weaken, the expansion of business expenses is expected to add further pressure.
According to the General Insurance Association of Korea on the 17th, as of August this year the net expense ratio of 31 domestic non-life insurers was 25.8%. That was up 2 percentage points from the same period a year earlier (23.8%). The net expense ratio refers to the share of premiums collected from policyholders that is taken up by business expenses. The higher this ratio, the more of insurance revenue is being put into attracting subscribers.
The scale of business expenses is also growing. According to the Korea Insurance Development Institute, the net business expenses invested from January to August this year by 41 non-life insurers operating in Korea totaled 4.81341 trillion won, up 9.8% from a year earlier.
Business expenses are the costs insurers spend for soliciting, maintaining and managing insurance contracts. They include advertising, administrative expenses and labor costs. In general, the commissions paid when exclusive agents and insurance corporate agency (GA) agents attract new subscribers are said to account for the largest share.
Non-life insurers are increasing business expenses because life insurers have been rapidly expanding third-sector insurance recently. Third-sector insurance is a category that both life insurers and non-life insurers can offer. Representative products include disease, accident, child and health insurance.
According to the Korea Insurance Development Institute, in the first half of this year the initial premiums for individual third-sector insurance (protection excluding death benefits) recorded by life insurers were 515.9 billion won, up 230.1% from a year earlier. During the same period, initial premiums for individual third-sector insurance (excluding driver and property) at non-life insurers were 474.6 billion won, up 18.6% year over year. The growth rate for life insurers was far higher, and the amount itself was also larger than that of non-life insurers. To compete with life insurers and secure sales competitiveness, non-life insurers have little choice but to increase expenditure on commissions paid to agents.
The rise in business expenses is expected to add to the burden on non-life insurers, whose net profit is shrinking. In the third quarter this year, the combined cumulative net profit of the five major non-life insurers—Samsung Fire & Marine Insurance, DB Insurance, Meritz Fire & Marine Insurance, Hyundai Marine & Fire Insurance, and KB Insurance—was 5.5245 trillion won, down 17.7% from a year earlier.
An official in the non-life insurance industry said, "As competition between non-life and life insurers intensifies in the health insurance segment of third-sector insurance, business expense expenditure is increasing."