Digital transformation to improve Korean insurance
Analysts, however, warn that this may increase competitive pressure.
Advanced digital technologies will improve Korean insurance across the business value chain, including the introduction of more personalised and on-demand policies to the market, but may also increase competitive pressure, according to a report by Fitch.
Fitch said that digital technologies will allow risk to be measured and accumulated in real time for each individual policyholder to be reflected in pricing. Additionally, online distribution channels will expand, spurred by the impact of the pandemic as well as technological developments and the rise of more-digitally savvy young generations.
Meanwhile, traditional face-to-face channels are likely to shift towards a hybrid model, combining digital tools to boost efficiency and effectiveness.
Fitch said it expects more Korean tech companies to enter the insurance industry, with some large tech platforms planning to start insurance businesses by leveraging their large subscriber base, focusing on small and short-term policies with low entry barriers and are likely to intensify market competition.
“We regard healthcare services as a new growth driver for Korean insurers due to the country’s rapidly aging population and the relaxation of regulations for investing in the healthcare sector. Insurers are paying attention to proactive risk prevention by offering diverse healthcare services to policyholders and we expect them to increase their investment in start-ups or to set up subsidiaries,” Fitch said.
In a separate report, Moody’s warns that a wider adoption of fintech will likely increase competition. However, the report acknowledges that it will also improve customer engagement and bring credit benefits for the industry.
"Given no single Korean insurer has a dominant online platform, new fintech players could leapfrog established distribution and marketing channels. This technology race is likely to be a credit burden for some incumbent insurers," said Young Kim, a Moody's analyst.
Kim expects Korean insurers' ability to integrate customer data in their business models will be a key credit strength amidst stiffer competition, with many new players having well-established platforms that cater to Korea's young, tech-savvy customer base.
“Apart from competing with these entrants in offering basic, short-term products, traditional insurers face the rising risk of competition spreading to the full suite of insurance products as upcoming regulations widen the scope of new types of insurance operators,” Kim added.