Expected reliance on health insurance may leave insurers vulnerable to medical risks.
South Korea’s ageing population is expected to double by 2040, posing a key challenge for the country’s insurers, reports Moody’s Investors Service.
The share of the population aged 65 and above is set to make up 32% of all South Koreans by 2040, from only 16% in 2020.
"Korea's population is ageing at a faster rate than Japan's, and this trend will be credit negative on profitability and capital adequacy as demand for mainstream insurance products – such as mortality protection and auto policies – declines," says Young Kim, a Moody's analyst.
Kim expects insurers to increasingly focus on third-sector products in pursuit of growth. One example of this is health insurance, which is less sensitive to interest rate movements and consumes less capital than other traditional insurance products like savings and annuity.
However, expansion to health insurance will leave insurers vulnerable to risks such as medical costs inflation, regulatory intervention, and a lack of a claims record. These could lead to inadequate pricing, Kim warns.
Uncertainty also remains around whether third-sector insurance alone can sustain the insurance sector's credit standing, with risks of the unseasoned nature of new products.
Growing reliance on third-party agency channel to distribute third-sector products could push up commission expenses and further narrow margins, Moody’s noted in a report.
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