A combination of factors including the country’s demographic crisis, a low-interest rate regime and slow economic growth are stifling the growth of South Korea’s life insurance industry, which registered a compound annual growth rate of just 0.5% during 2014-2019, says GlobalData, a leading data and analytics company.
South Korea’s life insurance business was worth KRW114,709bn (US$100.5bn) as of 2019, in terms of total direct written premiums.
GlobalData’s report, ‘South Korea Life Insurance: Key Trends and Opportunities to 2023’, reveals that the South Korea’s life insurance penetration, direct written premiums as a percentage of GDP, declined sharply from 7.4% in 2014 to 6% in 2019.
Tapas Bhowmik, Insurance Analyst at GlobalData, comments: “South Korea is grappling with a long-term decline in fertility rate. It dropped to a record low of 0.8 in 2019, less than half of the replacement rate required for stable population. Low fertility rate entails a steady decline in the working age population and has impacted growth of new premium.”
The slowdown in the sale of life insurance products is also due to the existing low interest rates. The Bank of Korea has been reducing benchmark rates in response to the economic conditions.
With declining yields, life insurers are struggling to sell products with guaranteed returns, which are very popular in the country. In fact, for the first time in 2019 life insurers’ annual investment yield was less than the payouts to policyholders. As a result, insurers are shifting focus from selling guaranteed return products to coverage-based ones.
Bhowmik concludes: “South Korea’s export-led economy faces a prolonged slowdown due to the current global economic slowdown as well as the unexpected disruptions due to coronavirus outbreak. As a result, the short-term outlook for the life insurance business in South Korea is likely to be under pressure.”