Non-life insurers downsizing workforces

Vehicles are on the road in Seoul in this 2019 file photo. Yonhap

By Lee Min-hyung

Non-life insurers are downscaling their workforces in car insurance sales channels, as part of their inevitable step to cut operating costs amid falling revenue.

The auto insurance business used to be one of the crucial profit sources for major property insurance firms here. But most non-life insurers are recently taking a variety of measures to minimize operating expenses in last-ditch efforts to offset rising loss ratios.

Industry officials said the outlook for the business remains murky, as they cannot control the price of insurance independently despite declining profitability, in the face of the government's tight regulations.

Last year, Lotte Non-Life Insurance downsized almost half of its workforce in its auto insurance telemarketing sales channel, in a bid to reduce what it believed to be “inefficient expenses.”

“The decision reflects customers' growing preference for online subscription channels,” a company official said. “Fewer people rely on telemarketers when they sign or renew their auto insurance.”

Reducing the workforce is often regarded as the first step that many firms take to cut fixed costs at a time when their businesses are in a slump or external uncertainties grow.

“Auto insurance is a mandatory product that every driver should sign up for, so the government controls its premium,” he said. “An insurer cannot raise its auto insurance charges to the level it wants, which means it has to find other ways to offset rising loss ratios.”

Other mid-tier life insurers ― such as Hanwha General Insurance ― are also on track to reduce their workforces. The Hanwha affiliate accepted voluntary resignations last year, and 30 officials left. The company reported 94.1 billion won in operating losses for the year.

Industry sources express concerns that they are not in a position to simply attract as many customers as possible, as this may end up worsening their revenue despite sales growth.

“For this reason, insurers are de facto seeking to pick and choose customers with low accident records,” a source said. “Insurers cannot control the car premiums, while at the same time walking on eggshells laid by regulators that press insurers to rarely increase the cost of insurance.”

In this period of dismal marketing circumstances, there are only a few things that insurers can do to keep operating their auto insurance business, according to the official.

The external uncertainty stems mostly from the prolonged low interest rate which drives down the rate of return on their investments. On top of that, their auto insurance profits keep declining due largely to an increase in car repairs and maintenance costs, with more customers purchasing overseas luxury vehicles.