The Impact of IFRS17 on the Overheating GA Market and Possible Solutions

The introduction of the new insurance accounting standard, IFRS17,

The introduction of the new insurance accounting standard, IFRS17, in the first quarter of 2024 has brought significant changes to the insurance industry. One of the most notable changes is the increased importance of Contractual Service Margin (CSM), which has led to a surge in the influence of General Agencies (GA) that excel in securing high volumes of CSM. As a result, insurance companies have been actively entering the GA market through subsidiaries and equity investments, leading to an overheating market. This blog post explores the background of the GA market overheating following the implementation of IFRS17, the resulting issues, and potential solutions.

IFRS17 requires insurance companies to recognize the expected future unrealized profits from insurance contracts as a present value liability, which is gradually amortized and recognized as operating profit over several years. This has made CSM a critical growth indicator for insurance companies, driving them to focus heavily on channels that can secure substantial CSM, such as GA.

GA channels primarily sell protection-type insurance and long-term casualty insurance, both of which are advantageous for CSM accumulation. This has made GA an increasingly attractive sales channel since the implementation of IFRS17. According to Hana Financial Research Institute, the new contract CSM of the top five non-life insurance companies in the first quarter of 2024 reached approximately 2.6 trillion KRW, a 7% increase compared to the same period last year. This demonstrates the strong competitiveness of GA channels in securing CSM.

In response to this trend, insurance companies have been aggressively entering the GA market. Life insurance companies have converted their exclusive channels into subsidiary-type GAs, while non-life insurance companies have expanded their influence through equity investments in large GAs. However, this market overheating has intensified the competition for recruiting agents, leading to increased business expenses and declining profitability for both GAs and insurance companies. For instance, in 2023, the average monthly premium per exclusive insurance agent decreased by 4.3% compared to the previous year, while the average monthly income per agent increased by 10.5%, reflecting the impact of the overheated market.

The overheating of the GA market is not just a concern for insurance companies and GAs; it also poses potential risks to consumers. As costs rise, there is a likelihood of increased insurance premiums, which would place a greater financial burden on consumers. Therefore, it is essential for financial authorities to establish clear guidelines, stabilize the GA market, and for both insurance companies and GAs to engage in self-regulation. Addressing these issues and fostering a healthy competitive environment is crucial for the sustainable development of the insurance industry.