Digital insurers face worsening profitability

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By Anna J. Park

Digital insurance providers appear to be logging worsened financial performances this year, due to fiercer competition as well as their focus on less profitable short-term insurance policies.

According to data by the Financial Supervisory Service (FSS), Carrot General Insurance, the country's first digital insurance company launched in 2019, logged a net loss of 14.6 billion won ($11.2 million) in the first quarter of this year, a deteriorating year-on-year performance. The company posted a net loss of 12.4 billion won during the first quarter of last year, and an annual net loss of 65 billion won last year.

Hana Insurance, another digital insurance provider launched in 2020, also logged a quarterly net loss of 5.4 billion won in the first quarter, resulting in a deficit ― down significantly from the first quarter of last year's net profit of 1.6 billion won.

Kyobo Lifeplanet Life Insurance, a digital life insurer, also saw an increased quarterly loss of 4.5 billion won in the first quarter of this year, from a 4.3 billion won loss posted during the same period last year.

As digital insurance companies offer online-exclusive and app-based insurance policies, these companies mostly aim at millennials and Gen Z consumers, who find it easy to apply for insurance policies online.

Fitting the needs of the main target consumers, digital insurers tend to focus on selling short-term insurance policies, such as vehicle, tourism or cellphone damage insurance, rather than long-term insurance, which is more profitable for insurance companies. As short-term insurance products are relatively low in price, digital insurance providers find it hard to raise their profitability significantly.

In addition, the joining of new digital insurers into the local market is adding downward pressure on these firms' already-weak profitability. Kakao Pay plans to launch its digital insurance subsidiary during the third quarter, while Shinhan Financial Group is also preparing to strengthen its digital insurance business with its acquisition late last year of BNP Paribas Cardiff Non-Life Insurance.