Insurance Research Institute: "Insurance Industry Growth to Hit 3.5% Next Year, Half This Year's Estimate"

'2027 Insurance Industry Outlook and Challenges' Seminar Held
Insurers Need to Address Slower Growth, Lower Profits and Declining Capital Quality
Institute President Kim Heonsu: "Risk Management Capabilities Must Be Strengthened"

The insurance industry is forecast to grow by 3.5% next year, half the rate expected this year. Insurers have been advised to respond to slower growth, lower profits and declining capital quality, while strengthening their risk management capabilities.

Insurance Research Institute President Kim Heonsu delivers welcoming remarks at a seminar held on the 23rd titled “A New Safety Net for a Hyper-Risk Society: Plans and Challenges for Introducing Inclusive Insurance in Korea.” Reporter Lee Seunghyeong.

The Korea Insurance Research Institute held a seminar on October 22 titled “2027 Insurance Industry Outlook and Challenges” and presented its forecast.

Kim Donggyeom, head of the Financial Market Analysis Division, said in a presentation on the 2027 insurance industry outlook that although the industry’s profitability and solvency indicators improved this year, other trends emerged in the components reflecting growth, profits and capital quality.

Profitability indicators, including net income and the contractual service margin (CSM) in the life and non-life insurance sectors, and solvency indicators, including the ratio under the Korean Insurance Capital Standard (K-ICS), improved from a year earlier.

In the first half of this year, life insurers’ net income rose 18% year on year to KRW 3.9 trillion, while non-life insurers’ net income increased 5% over the same period to KRW 4.5 trillion.

As of the end of June, the CSM of life insurers totaled KRW 66.7 trillion, up 4.5% from a year earlier, while that of non-life insurers reached KRW 73 trillion, up 5.2%.

At the end of June, the K-ICS ratio for life insurers stood at 193%, up 2 percentage points from the previous quarter and 12 percentage points from a year earlier. For non-life insurers, it was 217%, up 2 percentage points from the previous quarter and 14 percentage points from a year earlier.

The problem is that the improvement in profitability and solvency indicators was driven by investment income, including valuation gains, rather than by insurance operations, the industry’s core business.

According to Kim’s analysis, the risk margin, which reflects the competitiveness of insurers’ core businesses, had remained negative in both sectors since the fourth quarter of 2024. Retained earnings also grew only marginally.

Kim said insurers’ growth drivers had weakened across all areas: business operations, earnings and asset and capital structures.

In terms of business operations, product concentration intensified, with life insurers focusing on products with no or low surrender values and non-life insurers on disease and accident insurance. Sales have become concentrated in face-to-face channels and general agencies (GAs), fueling cost competition centered on sales promotion expenses.

In terms of earnings, insurance income accounted for only 40.1% of operating profit at life insurers and 61.5% at non-life insurers.

In terms of asset and capital structures, the negative spread on high-interest-rate contracts at life insurers and non-life insurers’ concentration of lending to small and medium-sized enterprises limited their ability to offset losses with investment income. As a result, most of the increase in available capital came from valuation gains, while retained earnings did not rise significantly.

Kim said business regulations set to take effect next year could constrain insurers’ growth potential in the short term.

Business regulations, including reforms to the commission system and the introduction of a system for assessing the operational risks of GAs, could prompt adjustments to sales costs. Meanwhile, growing demands for capital to meet solvency regulations, such as the basic capital ratio requirement and the refinement of actuarial assumptions, are expected to affect insurers’ incentives to sell new policies and their capacity to conduct business.

Kim said the insurance industry is forecast to grow by 3.5% next year, half the expected rate of 8.0% this year.

Total insurance premiums next year are projected to reach KRW 299 trillion, up 3.5% from this year’s estimate of KRW 289 trillion.

Life insurance premiums are expected to rise 2.3%, down 6.5 percentage points from this year’s projected growth rate of 8.8%. Protection-type insurance is expected to drive growth, but declines in savings-type and variable insurance, as well as retirement pensions, are expected to limit the overall increase.

The growth rate of direct premiums written by non-life insurers is forecast at 4.5%, down 2.7 percentage points from this year’s estimate of 7.2%. Direct premiums written are expected to increase, led by long-term non-life insurance.

Kim Haesik, head of the Research Coordination Division at the Korea Insurance Research Institute, presented the insurance industry’s management and policy priorities for next year in a presentation titled “2027 Insurance Industry Challenges.”

Management priorities include ▲strengthening the earnings base of existing core coverage and ▲reallocating resources to new growth areas, including retirement income, health and care, and corporate risks.

To reallocate resources, he proposed that insurers ▲link coverage with services; ▲manage assets, liabilities and liquidity by policy cohort; ▲underwrite insurance in ways that reduce risk; ▲redesign claims submission and payment processes; and ▲strengthen accountability and corrective authority throughout the product life cycle.

Policy priorities include ▲clarifying the scope of business and service quality standards for new businesses; ▲ensuring effective implementation of improvement plans for the Own Risk and Solvency Assessment (ORSA) framework; ▲building shared risk data; ▲establishing a sales compensation system that reflects policy persistency; and ▲securing control over artificial intelligence (AI) and outsourced services.

Kim urged that “efforts should also be made to assess in advance how policy initiatives may affect consumer choice and market competition.”

Kim Heonsu, president of the Korea Insurance Research Institute, said, “Sustainable growth is determined not by sales capability, but by the scale of risk a company can bear. We must strengthen risk management capabilities, close protection gaps and achieve growth that consumers can feel.”

Kim stressed, “As the nature of the risks insurers must cover changes, they need to build both the capacity to remain accountable for the risks they underwrite and the trust of consumers.”

This content was produced with the assistance of AI translation services.