South Korea to Allow Insurance Firms to Expand into New Businesses
South Korea’s financial regulator, the Financial Services Commission (FSC), is planning to broaden the scope of businesses that insurance companies can operate through their subsidiaries. The move aims to help the insurance industry adapt to significant changes in the country’s demographics, climate, and technological advancements. The FSC announced these future tasks for the insurance industry on Sunday, outlining its plans to address these key shifts.
Kim So-young, Vice Chairman of the Financial Services Commission, speaking at an insurance reform meeting.
The most pressing issue facing the insurance industry, according to the FSC, is the rapid shift in the country’s population structure. With the elderly population projected to reach 40% by 2050, the demand for traditional insurance products is dwindling, which could lead to declining profitability for insurance companies.
To counter this, the FSC intends to expand the range of subsidiaries and ancillary businesses that insurance companies can engage in. This will provide insurance companies with sustainable business models and allow them to offer more comprehensive coverage to consumers. Under the plan, insurance companies will be able to offer nursing services through their subsidiaries, with the potential to increase profitability by linking these services with healthcare.
Furthermore, insurance company subsidiaries could manufacture and distribute senior-specific foods, offering customized meals according to personal data collected. The development of nursing facilities by insurance companies will also be encouraged. The FSC plans to allow them to engage in businesses outside nursing care when land use restrictions make it necessary, and to establish subsidiaries that specialize in managing senior housing or welfare facilities for the elderly. Pet-related businesses, including pet insurance enrollment, hospital reservations, and claims, will also be permitted on a platform.
With these institutional improvements, the FSC expects insurance companies to become more proactive in supporting citizens’ retirement planning. The FSC will also permit insurance companies to introduce new product types to reinforce their role as a societal safety net. For example, the introduction of tontine and low-surrender pension insurance will promote private insurance. This type of insurance, already available in Japan since 2016, is designed to cover longevity risks, potentially increasing pension amounts by 38% compared to standard pension products if the policyholder lives longer. However, given the payout reduction if the insured dies or cancels the policy, the FSC plans to require insurers to provide consumers with adequate explanations before launching the product in early 2026.
In response to increasing life expectancies, the financial regulator will also permit measures to allow for the liquidation of life insurance funds during the insured’s lifetime. This includes allowing part of the death benefit to be used for living expenses or medical care, with the remainder going to a designated beneficiary. This move is intended to revitalize demand for life insurance, which has decreased due to low birth rates, an aging population, and the rise of single-person households. The government has promoted the liquidity of death benefits to stimulate private pensions, which can help supplement the nation’s insufficient public pensions, such as the National Pension.
The goal is to allow insurance companies to fulfill their role as a safety net for society. Korea’s private pension reserves account for only 28.5% of the gross domestic product (GDP), far less than the United States’ one-fifth and the United Kingdom’s one-fourth.
The FSC will also support the development of ‘index-based weather insurance’ to help subscribers deal with weather anomalies and enhance collaborations within the infrastructure that will enable the insurance industry to improve ‘insurtech’ based on artificial intelligence (AI) and big data.
