The new contract ratio of domestic life insurance companies has fallen below 10 percent. The ratio indicates the share of new policyholders in a life insurer’s total subscribers.
The metric has continued to drop since 2010 when it fell below 20 percent for the first time. The steady decline is attributed to the over-saturation of the Korean life insurance market and young people in their 20s and 30s turning away from social safety net type of insurance policies. It took less than 10 years for the 10 percent line to collapse.
Life insurance companies, who already face regulatory challenges in pushing for innovative growth, now face another burden in addition to the pressure for recapitalization with the upcoming implementation of IFRS17.
According to the Korea Life Insurance Association, the average new contract ratio of domestic life insurance companies was 9.74 percent as of November 2018. The ratio is the percentage of the new insurance contract value divided by the existing contract value; a decrease in this rate means the company has difficulty in attracting new policyholders.
As life insurance contracts are, unlike non-life insurance products, long-term products and are not mandatory, the new contract ratio shows the level of interest in life insurance among potential policyholders and the future growth potential of the life insurance industry in general. The life insurance industry is facing a grim outlook as the new contract ratio is unlikely to recover the 10 percent range.
The drop in the metric is attributed to young people in their 20s and 30s not being able to afford insurance due to unemployment and low wages. According to the Korea Insurance Development Institute, the number of life insurance policy subscriptions by people in their 20s and 30s plunged from 23.2 million in 2013 to 20.65 million to 2017. Although there was no final count, the figure is estimated to have fallen below 20 million in 2018.
Life insurers are trying to reach the younger generation with “mini” policies that have less coverage with a cheaper premium, but they are facing an uphill battle due to the dropping economic power of the younger generation. An official at a life insurance company said, “If the younger generation turns away from a social safety net type of private insurance, their dependence on public insurance grows. This may ultimately lead to an increase in government spending. It is necessary to foster private insurance to complement public insurance.”