How Can Digital Insurers Overcome Their Deficits?

Digital insurers are struggling to meet expectations. Recent data shows that five digital insurers have significantly expanded their net losses compared to last year.

Digital insurers are struggling to meet expectations. Recent data shows that five digital insurers have significantly expanded their net losses compared to last year. To overcome these deficits, they need to diversify their product portfolios and enhance their sales channels. Let's explore the challenges faced by digital insurers and their strategies for the future.

Digital insurers were expected to play a disruptive role in the insurance industry, driving innovation. However, they have struggled to achieve notable results. From Kyobo Lifeplanet to Kakao Pay Insurance and Shinhan EZ General Insurance, no company has shown remarkable performance since their inception. Instead, they continue to face widening deficits.

Why Are Digital Insurers' Losses Increasing?

The five digital insurers — Carrot General Insurance, Kakao Pay Insurance, Kyobo Lifeplanet, Shinhan EZ General Insurance, and Hana General Insurance — reported a combined net loss of 99.5 billion KRW in the first half of this year, a significant increase from the previous year. Carrot General Insurance recorded the largest loss of 30.8 billion KRW, followed by Kakao Pay Insurance and Shinhan EZ General Insurance, whose deficits also grew.

The difficulty for digital insurers in escaping from losses stems from limitations in their sales channels and product structures. Insurance products are diverse and complex, making many consumers prefer face-to-face consultations. In fact, the reliance on face-to-face channels in the general insurance sector is 72.8%, while it is as high as 99.5% in the life insurance sector. The low share of non-face-to-face channels places digital insurers at a disadvantage in the competitive landscape.

Strategies for Improving Profitability of Digital Insurers

To improve profitability, digital insurers must diversify their product portfolios, especially by focusing on long-term protection insurance. These products are advantageous for securing Contractual Service Margins (CSM), a key measure of future profitability under the new accounting standard (IFRS17). A higher CSM indicates increased net income.

Digital insurers are actively expanding their line-up of long-term insurance products and enhancing their sales channels. Kakao Pay Insurance, for example, recently launched a long-term insurance product called "Insurance for Elementary and Middle School Students," moving away from their earlier focus on short-term products. Hana General Insurance plans to introduce a hybrid organization that combines both face-to-face and digital sales strategies. Shinhan EZ General Insurance and Kyobo Lifeplanet are also launching various long-term insurance products to strengthen their profitability.

The Need for Policy Support for Digital Insurers

Experts emphasize the need for policy support to help digital insurers stabilize and improve profitability. Lee Jung-woo, a research fellow at the Korea Insurance Research Institute, pointed out that while digital insurers can focus on inbound sales with low prices and convenience as differentiating factors, there are limits to their profitability. He suggests that policy support is needed to help digital insurers fill coverage gaps and activate digital sales channels.

Digital insurers are facing a tough reality with expanding losses. To survive and increase profitability in the market, they must diversify their product offerings and restructure their sales strategies. With the government's and the industry's support through policy measures, digital insurers could become true innovators in the insurance sector.