Revised Outlook for the Korean Insurance Market in 2023
Insurance market growth in Korea is expected to slow down to - 0.7% in 2023 from 11.6% in 2022, with total premiums projected to reach KRW 250.9 trillion, according to a revised outlook report released by the Korea Insurance Research Institute in July 2023. The life insurance market is forecast to contract sharply due to a decline in savings and investment-type insurance, while the non-life insurance sector is likely to moderate from an unusually high growth rate in the previous year, but positive growth will be sustained on the back of general property and casualty (P&C) insurance as well as long-term insurance.
This revised outlook reflects a gradual economic recovery and increasingly intense marketing competition among insurers, presenting higher growth estimates for 2023 compared to the previous forecast made in October 2022. However, the insurance market outlook remains uncertain due to the high levels of uncertainty surrounding the current economic and financial market environment.
With macroeconomic and financial market uncertainty set to prevail, insurance companies will maintain a vigilant watch over economic conditions, such as interest rates, inflation, GDP growth, and household indebtedness. Notably, the stock markets have experienced short-term volatility following Fitch Ratings' downgrade of the US credit rating in early August 2023. Long-term interest rates are expected to be slightly higher in the second half of 2023 compared to the first half. Even though inflation has moderated in recent months, it remains to be seen if the trend will continue.
The life insurance market is projected to decline, with premium income expected to decrease by 5.4% to KRW 125.5 trillion in 2023. When retirement annuity premiums are excluded, the rate of projected decrease further deepens to 10.8%.
General savings insurance premiums are expected to fall by 25% mostly due to the base effect from the surprisingly high growth in the previous year. Although there are factors that support the growth of savings insurance, such as an increase in the credited interest rate and the demand to reinvest mature savings plans into new savings insurance products, insurers find it challenging to continue having interest rate competition against other financial institutions such as banks, with rising interest rates on bank deposit products making savings insurance look less attractive.
In 2012, a rush to purchase general savings insurance was observed before the tax changes that took effect in 2013. Consequently, a substantial number of these savings policies matured in 2022. It was anticipated that many of the policyholders receiving maturity benefits would reinvest in new savings insurance. Now that the active phase of reinvestment is tapering off, there is not much potential for a further significant boost in sales of savings insurance.
While an increasing life expectancy remains the primary driver for the growing demand for annuity plans, the expansion of life annuity supply is likely to face constraints due to challenges in managing longevity risk and dealing with stronger capital requirements under new accounting standards.
General annuity premiums are expected to decrease due to the base effect resulting from the sharp increase in premiums for single-premium insurance policies in the latter half of the previous year. As for individual annuities, there may be an uptick in new enrollments following a tax law revision coming into effect in 2023, which raises tax benefits for individual annuity premiums, but the additional demand spurred by the tax deductions may not be as much as expected.
Variable life savings insurance is also encountering headwinds, with premium income expected to decline by 9.6% in 2023 amid growing financial market volatility. A weakening economy, alongside rising interest rates and reduced liquidity, may cast a shadow on the outlook for the stock market, dampening the sales of investment-type insurance and leading to higher surrender rates.
On the other hand, premiums from protection-type insurance are forecast to grow by 2% because sales of health insurance remain robust. The COVID-19 pandemic has significantly heightened risk awareness and sparked a surge in demand for health insurance coverage. This trend is further fueling insurers' marketing efforts to promote protection-type products under IFRS 17.
The non-life insurance market has been demonstrating greater resilience compared to the life sector over the last few years, and its premium volume is expected to grow by 4.4% to KRW 125.4 trillion in 2023. The growth will be supported by most lines of business including long-term personal accident and health insurance, general property and casualty (P&C) insurance, driver insurance, and retirement annuities. Individual annuity premiums will continue to decline, but the pace of decline is expected to slow down. Excluding retirement annuities, premium growth is forecast at 4.1% in 2023, with total premiums of KRW 101.6 trillion.
Long-term insurance is projected to grow by 4.8% in 2023, driven by personal accident and health insurance as well as driver insurance. The growth of long-term savings insurance premiums is likely to be limited, as insurers remain focused on marketing protection products. The motor insurance market is projected to slow down further, growing by 1.2% in 2023, due to a decrease in premium rates amid the stabilization of loss ratios. The rise of usage-based insurance and the growing popularity of online distribution channels that usually offer lower prices are also putting downward pressure on premium income growth per policy.
General P&C insurance will remain a strong driver of non-life insurance growth, although it still accounts for a small portion of the entire non-life market. Its premiums are expected to grow by 7% in 2023, with solid growth momentum coming from the casualty lines of business. Liability insurance will continue to boost the casualty market, which is expected to expand by 8.5%, amid an increased awareness of the importance of liability protection for companies and the expansion of compulsory insurance. The growth of marine insurance is set to decelerate, but increasing trade flows and shipbuilding orders will allow marine insurance to maintain positive growth. Fire insurance premiums are poised to grow by 2% thanks to growing demand from households.
The retirement annuity market in Korea is on track to keep growing. As the country’s 65-and-older population is growing rapidly, the demand for annuity products is rising. Strong growth will be particularly pronounced among life insurers, with their retirement annuity premiums projected to grow by 15.4% in 2023. Non-life insurers are expected to show a slower growth of 6% in retirement annuity premiums primarily due to the base effect from an unusually high growth rate in the prior year.
However, there is a higher level of uncertainty surrounding growth projections for the retirement annuity market due to a substantial portion of premium contributions being made toward the end of the year. There are several upside factors that fuel the growth of the overall retirement annuity market, such as rising credited interest rates, the expansion of the individual retirement pension (IRP) sector, growing awareness of retirement income planning, and an increase in tax benefits for retirement pension contributions. On the other hand, insurers are facing downside factors, including intensified competition from other financial sectors and capital burdens for annuity reserves.