South Korea’s Insurance Industry Poised for Reform, Eyeing New Business Ventures

The Financial Services Commission (FSC) is driving significant reforms within South Korea’s insurance industry, aiming to foster innovation and adapt to evolving societal needs. The FSC has outlined plans to allow insurance companies to expand into new business areas, including healthcare, senior care, and even companion animal services. This strategic shift is designed to address the challenges posed by a rapidly aging population and embrace technological advancements.

![Kim So-young, vice chairman of the Financial Services Commission, speaks at an insurance reform conference held at the Seoul Government Complex in Jongno-gu, Seoul, on December 16 last year. Photo = Yonhap News

At a recent insurance reform conference, Kim So-young, vice chairman of the FSC, highlighted the critical need for the industry to adapt. The FSC recognizes the shrinking demand for traditional insurance products due to the changing demographics, with the elderly population expected to reach 40% by 2050. This demographic shift presents a potential challenge to the profitability of insurance companies.

To address this, the FSC intends to broaden the scope of subsidiaries and affiliated businesses that insurance companies can operate. This strategic move will empower insurers to create sustainable business models and better serve consumers. For example, insurance companies will be permitted to offer medical care services through their subsidiaries. Notably, the plan includes ventures in the nursing industry, providing opportunities to link these services with care facilities and healthcare provisions to improve profitability. The FSC also envisions insurance companies playing a role in providing tailored meal services to the elderly, leveraging personal data held by their subsidiaries.

Furthermore, the FSC plans to relax restrictions on establishing nursing facilities. Previously, strict limitations existed, but the new regulations are aimed at allowing more flexible operations, including some activities beyond medical care. This will enable insurance companies to more actively invest in the senior care market. In addition, the reforms will permit the launch of subsidiaries specializing in the management of welfare facilities for the elderly, creating opportunities for businesses focused on senior housing.

Pet-related businesses will also be a new field of focus, covering pet insurance, veterinary appointment scheduling, and claims processing. With these system improvements, authorities anticipate that insurers will become more engaged in helping people prepare for retirement.

Another critical component of the reform involves introducing new insurance products designed to strengthen the social safety net. One innovative product is tontin insurance, designed to pay less insurance if the policyholder dies early and increasing the payout the longer they live.

Tontin insurance, which has been available in Japan since 2016, addresses the risk of longevity. It is projected to increase the pension amount by nearly 40% compared to standard pension products. The authorities will explain the terms of conditions fully due to the implications of potentially reduced payments if the pension is paid early. They plan to release this product early next year. Another change in insurance regulation will allow for securitization of death benefits, which will permit the beneficiaries to use death insurance funds for living expenses or nursing care during their lifetime and receive the remaining amount after their passing. This is in anticipation of growing demand for this form of insurance in an aging population.

The government’s move to securitize death insurance money is intended to bolster private pensions, aiming to offset shortfalls in public pensions like the national pension. The intent is to empower insurance companies to act as social safety nets. Currently, private pension reserves in South Korea are only about one-fifth of those in the United States and one-fourth of those in the United Kingdom, relative to GDP.

The FSC also plans to support the development of “exponential weather insurance” to address extreme weather events and bolster “insure tech” by strengthening infrastructure for artificial intelligence (AI) and big data applications. The goal is to improve all aspects of the insurance industry. For instance, by using AI to verify car repair costs, disputes could be significantly reduced.