As the competition for new customers has become severe in the domestic insurance market due to saturation, business expenses spent by non-life insurance companies, including marketing cost, last year is expected to reach a record high.
Insurance industry and Financial Supervisory Service (FSS) sources said on Jan. 2 that the net business expenses of 11 non-life insurance firms stood at 11 trillion won (US$9.8 billion) as of the end of September last year, up 9 percent from a year earlier. When the current trend continues, the cumulative business expenses at the end of the year is forecast to reach 15 trillion won (US$13.36 billion), far surpassing 13.78 trillion won (US$12.28 billion) of the last year’s total working expenses. This is the highest figure of all time.
The amount of business expenses is surging every year because insurance companies have been competitively increasing cash allowances for planners to increase their market shares. Industry analysts note that directly incurred sales expenses, which account for 70 percent to 80 percent of the total business expenses, greatly increased on-year. Some non-life insurance firms saw their direct incurred sales expenses, which include commissions to planners, grow nearly 100 billion won (US$89.09 million) during the first three quarters of last year compared to a year ago.
The problem is that such competition among domestic insurance companies is unlikely to ease. As competition for new customers has increased because of the domestic insurance market saturation, insurance companies are competitively offering expensive goods and cash incentives to planners who have attained their sales targets. They are ignoring warnings against such a harmful practice from the FSS. In December last year, the FSS told three non-life insurance companies that led the competition to present management improvement plans. However, the insurance companies have not stopped such a practice as the regulator’s corrective measure carries no legal binding force and lack effectiveness, according to market experts.
Some analysts point out that non-life insurance companies run by professional managers instead of owners tend to be sensitive to performance, including growth in sales, so business expenses can increase further this year as well. Non-life insurance firms blame each other for triggering the competition first. However, there is a growing call for special countermeasures as an excessive competition will lead to higher premiums for insurance consumers and incomplete sales.