Insurers firms brace for renewed Nonghyup law

By Kang Seung-woo

With the laws regarding the operations of the National Agricultural Cooperative Federation, or Nonghyup, expected to change, the country’s insurance and credit card companies are bracing for the fall out.

The National Assembly is soon expected to approve the bill for the revision of the agricultural cooperative law that will split Nonghyup into a farming cooperative unit and financial services business. The separation of the financial unit will allow Nonhyup to start an independent insurance business by March next year and its potentially massive customer pool may allow it to challenge the supremacy of the country’s top-three insurers of Samsung Life Insurance, Korea Life Insurance and Kyobo Life Insurance. Nonghyup is also planning to spin off its credit card unit and launch a new brand called Chaeum Card.

According to the life insurance industry on Sunday, Samsung Life Insurance topped the asset table of life insurers in 2009 with 133 trillion won (about $119 billion), followed by Korea Life Insurance and Kyobo Life Insurance, which hold 59 trillion and 54 trillion won, respectively. The next group including Allianz Life Korea and Shinhan Life Insurance remain at the 10 trillion won level.

If Nonghyup, whose assets are estimated at around 30 trillion won, is permitted to enter the market, it would be the nation’s fourth-largest insurer, competitive enough to fight the three leading players.

Nonghyup already has a 12 percent market share in the insurance market, but its insurance business is in the form of mutual aid, where members raise funds to provide each other with payments in cases such as those relating to disease or death.

Despite the rosy expectations, there are a few things to sort out in its bid to boost its market share.

Currently, the law stipulates that when a bank or brokerage sells insurance products through bancassurance, the products of one company should not exceed 25 percent of the bank’s sales portfolio to prevent banks and brokerages from only selling policies from sister firms.

However, the government will exempt Nonghyup from the 25 percent rule for the first five years following the launch of its business, which means it would not be required to sell anything but its policies.

But private-sector insurers protested against the government’s move, saying the unfair advantage will hamper fair market competition.

“If Nonghyup takes advantage of its nationwide network of regional offices and financial branches, private insurers’ business in small-sized cities will be hit hard,” said an official of the insurance industry.

In addition, it needs to build a pool of insurance planners, the backbone of the business.

Considering the need, it has quickly undertaken to recruit planners, setting up an education center to nurture them.

“Ahead of Nonghyp’s launch of its insurance unit, a large number of planners are expected to move,” the official said.

Meanwhile, Nonghyup is deliberating on the cutoff of its credit card arm.

“We are reviewing whether to spins off the card unit but nothing is decided,” said an official of Nonghyup.

Unlike the insurance industry, Nonghyup would face an uphill battle with existing entities, as its current market share is far behind the industry-leading Shinhan Card.

Critics say that Nonghyup could be hurt if it wages a war against the established players.

The speculation that Nonghyup will tap into the card sector is forcing rivals to gear up.

“The entry of Nonghyup, which has potential market growth, will introduce an overheated competition,” said an official of the credit card industry.