A Move to Revitalize Competition
A lot of attention is being paid to whether a change will be made in the Korean reinsurance market, which Korea Re has virtually monopolized, as financial authorities has decided to authorize new reinsurers.
The Financial Supervisory Commission (FSC) announced on June 4 that it would lower the entry barriers for reinsurers to encourage the establishment of new players.
The commission’s move is intended to revitalize competition among non-life insurers in Korea. According to the commission, there is no or little price competition among domestic non-life insurers as they use the same insurance premium rates provided by reinsurance companies or the Korea Insurance Development Institute.
The existence of multiple reinsurers is expected to push non-life insurers to improve their capacity to assess corporate risks, thus stimulating price competition in the non-life insurance industry.
"We will prepare an amendment to the law on the insurance business in the first half of this year and push for its enactment in the second half of the year," the FSC said.
Accordingly, there is a growing possibility that price competition will occur as multiple new reinsurers enter the reinsurance market. Reinsurance is the transfer of a portion of an insurance policy to a reinsurance company to disperse risks when a non-life insurer underwrites large-scale business insurance.
In the meantime, insurers will be able to calculate premiums based on their own underwriting experience and statistics in addition to premium rates provided by the Korea Insurance Development Institute. "Insurers that have accumulated statistics and experience in risk assessment and contract acquisition will be given an incentive to lower their premiums," a FSC official said. “First of all, we are considering adding items to the assessment of the management of non-life insurers by the FSC as an incentive.”