This paper identifies future directions for the life Korean insurance industry through analysis of the current status and efficiency of Korean life insurance, so as to help the industry contribute to the financial development of Korea.
The importance of the role that Korea’s life insurance industry has played has been changing depending economic conditions. In the initial stage of economic development, effectively financed the economy as a source of financial resources for economic growth. The insurance industry’s risk management function was rarely emphasized. However, since the 1980’s, in the wake of financial liberalization and market opening, the original functions of insurance have received consideration. There has been increasing demand for insurance alongside greater risk following economic development. From the establishment of the government to today, Korea’s insurance industry has achieved an annual average growth of over 30 percent, becoming the world’s sixth largest life insurance industry in terms of premium income as of 1993.
The factors behind the dramatic growth of the life insurance industry include the government’s policy to promote the insurance industry, citizens’ increased awareness of the need for risk management instruments, and their continuously growing interest in insurance. The life insurance industry achieved dramatic external development, but internally it has been exposed to social problems due to poor management efficiency and low productivity in an oligopolistic market system. Being part of the financial industry, it is faced with changes in financial environments such as liberalization, market opening, and internationalization. Accordingly, Korea needs to restructure the role of the life insurance industry to further contribute to the nation’s financial and economic development by addressing problems with the industry.
When analyzing the efficiency of the life insurance industry to identify ways for its development, we assess several aspects such as growth, profitability, productivity, solvency, and economic feasibility. The life insurance industry is expected to slow its growth, as it has been centered on saving insurance products since the 1990’s and will face fiercer competition as other financial sectors are allowed to develop similar insurance products following the restructuring of the financial industry. In terms of profitability, the share of insurance’s operating income in the total operating earnings will continue to decrease. If foreign life insurers are allowed to advance into the domestic market, Korea will face competition with global insurance leaders such as the United States and Japan. Therefore, efforts should be made to advance asset management practices. When it comes to productivity, the Korean life insurance industry needs to work towards greater productivity. In terms of solvency, it should make effort to secure funds and payment ability sufficient enough to pay out insurance proceeds. As for economic feasibility, it has to be equipped with competition infrastructure against foreign insurance companies and the increase of capital supply might necessary.
This paper suggests the following approaches to developing the domestic life insurance industry:
• Increase the insurance policy retention ratio by focusing on the sales of mid-to-long term products
• Develop variable insurance products
• Secure competitiveness with financial institutions
• Improve operating balances
• Accumulate policy reserves and secure an optimal level of solvency to ensure financial soundness
• Introduce and enhance the professional management system
• Increase competitiveness
• Adopt a system to determine an amount of refund upon cancelation
• Make efforts to inform customers of product details
• Introduce a home-banking system
• Protect the interest of policy holders through protection of privacy
금융자율화에 따른 생명보험산업의 대응방안(Directions for life insurance industry in financial liberalization)
|Series Title; No||연구보고서 / 95-01|
|Subject||Economy < Financial Policy|
|Holding||KDI; KDI School|