Insurers must step up on Korean microinsurance

Private insurers in Korea should target low-income households above the near-poverty line as customers to avoid overlapping with the scope of programs run by the Korea Inclusive Financial Agency (KIFA) and share the role of the social safety net in the country, according to the Korea Institute of Finance. In a recent paper, Sukho Lee, senior research fellow, insurance and pension division at the institute, points out that insurers in advanced countries, such as AIG, Allianz and ING, view the microinsurance market as a “blue ocean” and are actively expanding their businesses globally. However, Lee says that insurers should design products with some public value rather than being completely commercial, considering low-income families’ economic constraints, to make it work for the benefit of all. “They could use joint sales platforms and develop standardised products to reduce costs. The government should provide incentives, such as reflecting ESG performance, management evaluation, and tax benefits, to encourage private insurers’ participation in the microinsurance market,” he said. He points to the example of Taiwan, which shows the potential of such incentives, with approximately 1.55 million microinsurance plans offered by private insurers as of March 2023, supported by policy incentives from financial authorities. In Korea, KIFA operates microinsurance programs to support low-income households with affordable insurance. These programs provide financial protection to vulnerable groups who cannot afford traditional insurance. However, they face significant limitations due to insufficient financial resources, points out Lee. “Voluntary involvement of private sector participants is essential for promoting and developing these programs. By engaging private insurers, KIFA can leverage additional resources and expertise, ensuring a more sustainable and comprehensive approach to supporting low-income households,” he says. Lee says that low-income groups are more vulnerable to shocks from illness, death, and disasters. Despite needing insurance the most, their enrollment rates are low due to economic constraints. For example, while 90.8% of households earning more than KRW 60m a year hold insurance plans, only 26.9% of households earning less than KRW 12m and 48.7% of households earning KRW 24m-36m have insurance. When asked why they are not enrolled, 88.7% of households with annual incomes below KRW 12m and 71.4% of those earning KRW 24m-36m replied that they cannot afford it, points out Lee. “Most current policy supports for low-income groups are direct financial aids through loans and subsidies. Indirect supports, such as insurance, would help low-income individuals remain economically stable during illness, death, and disasters,” he says. Lee says that because of the budgetary constraints faced by KIFA, fundraising is key to facilitating microinsurance. “Besides relying on returns from dormant insurance funds, it is necessary to seek other financial resources, such as involving more private sector participants or securing additional budgets. Reallocating budgets can be challenging,” he says. “Therefore, it is important to encourage private insurance companies to voluntarily establish a ‘Low-Income Insurance Support Fund’ or make special contributions to the microinsurance program. Utilising existing funds, such as the ‘Life Insurance Social Contribution Fund’ or the ‘Community Chest of Korea’ is another option,” adds the expert. Lee says that assuming sufficient funds are raised, microinsurance should expand its beneficiaries, diversify its products, and promote education. The scope of eligible beneficiaries should be broadened within budget allowances, including the near-poverty group by differentiating the support ratio by income group. “Comprehensive investigations should be conducted on the demand for microinsurance to develop products reflecting low-income groups’ needs, such as loan-related credit insurance and specialised insurance for young people with low income. Potential beneficiaries should be educated about microinsurance and how to make claims when necessary. KIFA should have personnel solely responsible for the microinsurance program,” suggests Lee.

Insurers must step up on Korean microinsurance

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