Posted on Mar 24, 2011 by Sergio Ulloa
South Korea currently boasts one of the ten largest insurance markets in the world with a particularly high-penetration rate in regards to life insurance. While the country's insurance sector is made available to foreign multinationals, both the life and non-life segments continue to be dominated by large domestic companies.
In order to maintain their growth, Korean insurance firms are now looking to expand into international markets. Domestic analysts fear that the alarmingly low birth rate and rapidly aging populace will curtail momentum in the local insurance sector. At present, one in 10 Koreans is aged 65 or older, but the ratio is expected to rise to over 14 percent by 2018.
Korea Life Insurance, established in 1946 as the country's first insurance company, has had to continue to innovate in order to maintain its market position amongst the local industry heavyweights. In March last year, it became the first Korean insurance company to go public. Now Korea Life is looking to strengthen its presence in global markets. The company is determined to maintain itself at the forefront of Korean insurance firms as they expand internationally.
Korea Life CEO and Vice Chairman Shin Eun-Chul emphasized this sentiment: "The local insurance market is becoming saturated, so advancement overseas is a must."
Korea Life Insurance has already demonstrated it has the capacity to handle international operations. The company was the first Korean life-insurance firm to enter the Vietnamese insurance market in April 2009, and they have already achieved desirable results. In their first year of operating abroad, Korea Life took 1.8 percent of the Vietnamese market in terms of new sales. The total number of new sales in the first year amounted to 10,000 policyholders, and the insurance premium income was $3.3 million, a rise of 67 percent on the previous year.
Korea Life has enjoyed its success in Vietnam and is looking to further grow its business in the country. Operations began in the Southeast Asian country with a staff of 450 financial planners working out of three separate branches, one in Hanoi and two in Ho Chi Minh City. Today there are over 3500 employee,s and 10 local offices that include Dak Lak, Khanh Hoa and Dong Nai.
"The insurance industry in Vietnam is growing at an annual average of 10 percent. And 60 percent of the population is under 30, so the potential for growth is very large," a Korea Life official said.
Korea Life hopes to match this projected growth in Vietnam through further expansion of their network to a workforce of 9,000 with 22 branches by 2013. The company is targeting a 7 percent market share for new life-insurance sales in Vietnam.
"Just as we have led the life insurance industry in Korea for the past 65 years, we will continue to write the history of the Great Challenge in Vietnam by offering the best products and customer services and helping the local insurance industry grow," a Korea Life spokesman said.
After investing and officially starting operations in the Vietnamese market, the next destination for Korea Life Insurance will be China.
In December 2009, Korea Life Insurance signed a cooperation agreement with China-based Zhejiang International Business Group to partner together and invest 45 billion Korean won (about $40 million) in establishing a joint venture operation. The new Chinese venture would be headquartered in Hangzhou. It is seen as an important step in establishing a presence in Zhejiang Province, one of the higher-income regions of China.
Korea Life Insurance has become South Korea's first insurer to establish a successful subsidiary in a foreign country. The relative ease to which they've transitioned into the Chinese and Vietnamese markets has enabled the company to consider further inroads into other emerging markets in the Asia Pacific region.
Meanwhile, in South Korea, the devastating aftermath of the record-setting earthquake and tsunami on Japan has led to calls from Korean analysts and companies in the insurance industry for the government to help development of an insurance system that covers damage dealt by earthquakes.
In the wake of Japan's disaster, many Koreans are wondering whether they are, in fact, protected from a similar catastrophic occurrence. At present, local non-life insurers do not provide stand-alone insurance products covering earthquakes. , However, companies offering insurance policies against other natural disasters such as heavy rainfall, floods, typhoons and hurricanes do share compensation with the state.
Some industry officials want to extend a similar cost-sharing arrangement for earthquakes: "After the Japanese earthquake, the non-life insurance sector has naturally turned its attention to earthquake insurance, and there has been talk in some quarters of suggesting state-supported earthquake insurance to the administration" an executive from the Korea Non-life Insurance Association said.
Japan's disaster insurance scheme is seen as a potential model to emulate. Through their system the national government shares over 90 percent of the payouts, and the private market deal with the remainder using reinsurance and retrocession. One industry officer concurred, "Korea needs to introduce insurance policies that compensate for losses, as Japan did."
The insurance companies want the government to share the burden of compensation for these new policies given the significant unpredictability of natural disasters. There is also a proposal to place earthquake coverage under the state-regulated natural disaster insurance scheme.
"When potential volcanic activity of Mt. Baekdu became a sensitive issue in Korea, the government started to push for earthquakes to be included in insurance policies amid growing concerns that a volcano eruption-sparked quake could hit the nation hard," said a representative from the National Emergency Management Agency.
Criticism has been levied at the proposed scheme, maintaining that an earthquake insurance policy will not be marketable due to the generally-held public belief that the Korean Peninsula is safe from a sizeable seismic threat.
"With low recognition of earthquakes in Korea, it is questionable if local consumers will sign up for the insurance," observed one market analyst. "It appears to be premature to launch earthquake insurance although it needs to be considered over the medium or long term."
According to a recent report issued by the Korea Insurance Research Institute, local awareness about the risks posed by earthquakes has remained low despite a rising frequency of earthquakes occurring in Korea.
The report goes on: "Although the number of earthquakes in Korea has continually increased, all economic units have underestimated the risk of earthquakes and do not consider them a subject for risk management because no large disasters have been caused by earthquakes."
The Korea Insurance Development Institute offers supporting evidence; out of 1.57 million active fire insurance policies in 2008, less than half a percent were then registered for optional earthquake coverage. In housing statistics, only 266 out of 122,737 homes with a fire insurance policy were also covered against earthquakes.
Insurance Companies Mentioned:
Korea Life Insurance Co Ltd:
Korea Life Insurance is an insurance company specialized in providing life insurance business. The company offers a wide range of insurance products including whole life/term insurance, survival insurance, death insurance, group insurance, annuity insurance and many other services for both individual and corporate customers. Substantial loan services, credit options, fund products and risk management services are also offered. Korea Life Insurance was founded as Daehan Life Insurance in 1946. The company is headquartered in Seoul, South Korea with additional offices in Ho Chi Minh City and Hanoi, Vietnam.