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By Lee Kyung-min
North Korea has set up insurance and reinsurance firms, in a gradual yet firm move toward an open market economy, according to experts.
According to Naenara, North Korea's state-run web portal, it set up Future Re Company in October 2017 targeting "both domestic and international markets," the first-ever reinsurance firm there.
Also known as insurance for insurers or stop-loss insurance, reinsurance refers to a practice of insurers transferring portions of risk portfolios to other insurers to reduce the likelihood of paying a large obligation resulting from an insurance claim.
This is considered a more sophisticated, advanced form of business risk management.
The firm was established only about a year after the North had set up two non-life insurance companies.
It set up Polestar Insurance Company, specializing in services against fire damage, technology, agriculture and trust in August 2016, and Samhae Insurance Company that covers marine and aviation insurance two months later in October.
The recent launch of the firms is an apparent move to lay the groundwork toward opening its economy, according to An Chan-il, president of the World Institute for North Korea Studies and chair professor emeritus of Open Cyber University of Korea.
"North Korea has seen an increasing number of new private companies there over the past few years and they need help of insurance against unforeseeable yet possible losses to ensure stable business operation," he said.
"The insurance is needed especially for plans involving setting up state-private joint business entities, a vital part of moving towards an open market economy. The move is also an indication the North is fully aware that foreign business and investment opportunities may very well go wasted given numerous precedents in the 1980s, past failures that hurt the country's reputation and prospect of economic growth. It would not want to repeat that."
North Korea opened the firms due in substantial part to the now-defunct inter-Korean economic cooperation, according to Yang Moo-jin, professor at the University of North Korean Studies in Seoul.
"Over the course of the Gaeseong Industrial Complex and Mount Geumgang tourism program, the North must have learned that measures are needed to protect against business risks followed by undesirable outcomes ― mostly suspension of business leading to economic losses. It is also aware that foreign businesses will remain reluctant to seek business opportunities there unless they can be guaranteed assurance of some form."
The establishment of firms is part of a broader effort to improve its "reformative" state policy to salvage what largely remains a "moribund" economy, according to an official from the Korea Institute of Finance who declined to be named.
"North Korea had only one state-run insurance firm that covered damages for businesses. But that no longer is possible given what many outsiders consider a deplorable financial status quo. So the authorities there are allowing private entities to come up with measures of their own to survive," he said.
The three firms came nearly 60 years after the Korea National Insurance Corp. had been established in 1947 which had long remained the sole insurance service provider in the country.
