Best's Review


New Insurers to Drive Digitalization in South Korea Non-Life Segment

The emergence of digital insurers could spur changes to traditional business strategies and structures.
  • April 2022
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Editor's Note: The following is an excerpt from Best's Special Report: New Insurers to Drive Digitalisation in South Korea Non-Life Segment. Go to to access the full report.

South Korea's non-life insurance segment is gearing up for more change with several new digital insurers poised to enter the market over the near term. While this development will bring greater competition to traditional incumbents, AM Best does not currently expect it to have any significant impact on existing insurance players in the country over the short-to-medium term.

Technology giant Kakao Corp. (Kakao), which runs South Korea's dominant mobile messenger app KakaoTalk, is planning its foray into the non-life insurance segment in the first half of 2022. The company's fintech arm and national leading mobile payment provider, Kakao Pay Corp. (Kakao Pay), filed for full regulatory approval of its new digital non-life insurer in December 2021.

Upon approval, the new insurer is expected to start operations in the first quarter of 2022 at the earliest. Kakao Pay has announced that the new insurer will focus on small-ticket non-life products with short policy durations. In addition, it will leverage Kakao Pay's user base and Kakao's digital ecosystem. There are plans for the digital insurance subsidiary to expand its business scope gradually to offer health insurance and new mobility-related insurance products using Kakao Mobility's ecosystem.

Apart from Kakao's high-profile market entrance, there have been several new players in the digital non-life business segment, such as Carrot General Insurance (Carrot), a subsidiary of Hanwha General Insurance. South Korea's first fully digitalized non-life insurer, Carrot, started operations in 2020; its main product is pay-per-mile auto insurance with a monthly deferred payment scheme, which remains unique in the industry. The company also sells other products such as simple personal accident, travel, pet and liability insurance. However, its market share remains very small at around 0.1% of gross premium written in the first half of 2021, due to limited product offerings and its short operating history. Nonetheless, Carrot's growth is notable; by December 2021, the insurer had accumulated 400,000 subscribers to its pay-per-mile product.

Large financial groups are increasingly expressing interest in the digital non-life business. Hana Financial Group's non-life subsidiary, Hana General Insurance, was revamped in June 2020 to focus on digital insurance. Shinhan Financial Group, which signed a deal for foreign non-life insurer BNP Paribas Cardif General Insurance in November 2021, also announced plans to transform this entity into a digital-focused insurer.

Related: Largest 30 Asia-Pacific Insurers — 2022 Edition

Potential Impact on Market Dynamics

Digital insurers typically concentrate on simple and small-ticket insurance products when they enter the market, as observed in Carrot's and Kakao's strategies; these new players will require time to amass a sizable premium base in order to cover the upfront investment in technology and ultimately make meaningful profits from simple products.

Additionally, these digital startups will take some time to cultivate sufficient underwriting and claims capabilities to handle more complicated products. As such, AM Best expects that the entry of these new digital players is unlikely to have a material impact on South Korea's non-life market dynamics over the short-to-medium term.

Nonetheless, should a new digital insurer be able to accumulate a large policyholder base quickly while preparing to expand into major product lines (such as auto and long-term health insurance), it could find itself able to compete meaningfully against traditional incumbents; customers initially acquired through simple product sales can then serve as a base for cross-selling later.

In this regard, AM Best notes that Kakao's foray into non-life insurance could exacerbate competition among existing non-life companies over the long term. Even with limited product offerings at the initial stage, Kakao's policyholder base is likely to grow much faster than other non-platform-based digital insurers, due to its massive user base and a digital ecosystem that spans mobile messaging, payment and banking services, as well as mobility and retail.

For example, KakaoTalk had 47 million monthly active users in the third quarter of 2021—approximately 90% of South Korea's population—while Kakao Pay and Kakao Taxi had 20 million and 10 million users, respectively, over the same period.

However, the market impact of individual non-platform-based digital insurers is likely to be relatively smaller than that of Kakao, mainly due to their potentially small scale. Nonetheless, the simultaneous emergence of multiple insurers that are fully digitalized (or at least digital focused) can increase customers' exposure to and familiarity with digital insurance. This could accelerate digitalization in the South Korean non-life insurance segment. The increased digital literacy across all age groups (especially catalyzed by the ongoing COVID-19 pandemic) is likely to also have a positive impact on this trend.

Although AM Best does not expect new digital insurers to have a material impact on overall competition over the short term, they could motivate existing players to reexamine their business structures and strategies.

Novel and innovative products and services introduced by new digital entrants could not only inspire traditional insurers to accelerate their innovation efforts but also create a bigger pie for the industry over the long term by increasing insurance penetration in areas which were historically underprotected. In addition, the increasing number of digital insurers with fundamentally low acquisition cost structures may prompt other companies to improve cost efficiency.

Related: Special Report: New Insurers to Drive Digitalisation in South Korea Non-Life Segment

Eventual Expansion Into Mainstream Products

When considering expansion, AM Best expects that digital insurers are likely to turn toward auto insurance, given that auto policies are mandatory and that online sales are more easily accepted by consumers (as demonstrated by a well-established online auto segment).

A digital insurer that can offer competitive pricing from its lower acquisition cost model and a superior user experience will be more likely to achieve a meaningful market presence in this segment, despite the presence of several large traditional insurers (such as Samsung Fire & Marine, Hyundai Marine & Fire, and DB Insurance) which currently dominate the market.

Kakao's massive platform, user base, brand power and expertise in digital user interface and experience are likely to enable the company to increase economies of scale relatively quickly once it enters the auto insurance segment. However, auto insurance has historically been a loss-making business in South Korea with strong market competition and tight regulations, which is likely to be challenging for new insurers to stabilize business over the short term.

In addition, AM Best expects that claims management expertise (especially in the liabilities coverage), which traditional players have accumulated over a long period of time, will remain a barrier to overcome for new entrants to be competitive in the auto segment.

AM Best is of the view that many digital non-life insurers will ultimately look to enter the health insurance segment, a major component of the long-term insurance line (and which is the largest business segment in South Korea's non-life market). Over the long term, digital insurers could provide tailored health insurance using medical data from digital health care services. Notably, Kakao recently established an in-house health care unit in December 2021 and invested in a health care startup.

However, health insurance is typically considered a “push product” in terms of marketing strategies, which could be challenging to sell through digital channels. Hence, unlike auto insurance, online distribution of long-term health insurance is currently minimal and AM Best expects that new digital players will have to overcome this fundamental obstacle to be successful in the digital health insurance segment.

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