Korean P&C market ripe for broker expansion

November 22 2022 by

A large and under-tapped market offers great potential for South Korean P&C and specialty brokers for consolidation and expansion of market reach, according to senior directors based in Seoul.

In 2021, only about 12.5% of the KRW11.6 trillion (US$8.65 billion) gross written premiums (GWP) of the Korean P&C market was placed through brokers, according to the Korean Insurance Brokers’ Association. This is in contrast to the more advanced insurance markets such as the US and the UK, where around 80% of total P&C GWP is placed through brokers.

Ben Son, the new chief executive of Lockton (Korea), told InsuranceAsia News (IAN): “The Korean non-life insurance market is changing from sales-centric (top line) evaluation to profit and loss (bottom line) evaluation.”

He added: “Accordingly, sales evaluation centred on direct sales is gradually decreasing. Insurance brokers are more competitive than other insurance channels (general agents, planners, etc.) because they perform total services such as risk analysis, evaluation, price comparison and provision, selection of insurance companies, contract signing, and claim services.”

It has been 25 years since brokers began in the Korean market. Initially, their main role was facultative and treaty reinsurance or large property risks. However, their role in the corporate market has grown with international brokers increasingly contributing.

Now the likes of large-scale construction projects funded by financial institutions such as roads, ports, railway construction, and large social overhead capital (SOC) projects, are all placed through brokers.

Seokmin Ko, chief executive of LK Insurance, commented: “The usage of insurance brokers has indeed been on the rise in Korea . . . sales that have gone through insurance broking in the general P&C insurance market have seen a marked increase since 2015, and by our estimates, around 30% of commercial lines insurance sales are being contracted through this channel.”

“The Korean non-life insurance market is changing from sales-centric (top line) evaluation to profit and loss (bottom line) evaluation.” Ben Son, Lockton (Korea)

Growing liability market
According to statistics from the Korea Insurance Research Institute, despite the Covid-19 situation, non-life insurance such as fire, marine, surety and casualty lines is showing 8% growth since 2020, with about KRW6.7 trillion worth of P&C GWP was written in the first half of 2022.

Growth of fire insurance has slowed down while marine and casualty, especially liability insurance are showing high growth rates due to an increase in ship orders and import/export volumes.

LK Insurance’s Ko told IAN: “P&C insurance has been growing at a faster rate compared to life insurance for the past five years in the South Korean insurance market. In particular, ‘general’ P&C insurance has been maintaining a markedly high growth rate of 8% (and above) since 2020, above the average of other P&C insurances.”

In the past, the market has been more sensitive to business fluctuations, however, despite the recent economic slowdown, the market has been expanding, said Ko.

Ko explained that the rise of the liability insurance market has been particularly strong. Indeed, liability GWP doubled last year from 2014 levels. He said: “We assess that this growth can be traced to an increased awareness in the importance of liability insurance due to overall economic growth, and the expanding coverage of liability insurance following the emergence of new industries. This growth potential presents an exciting market opportunity.”

“P&C insurance has been growing at a faster rate compared to life insurance for the past five years in the South Korean insurance market.” Seokmin Ko, LK Insurance 

LK Insurance insures large and multinational clients in the chemical/petrochemical, IT, high-tech, rubber and tire factories, and energy and oil refining industries.

Lockton’s Son said: “In terms of casualty insurance, GWP for commercial liability, professional liability, product liability is showing 9% of high growth and the reasons include increased safety and disaster incidents and expansion of demand in coverage; liability legislation; and environmental changes such as electric vehicles and autonomous driving systems.”

Opportunities include accounts with high reliance on overseas reinsurance capacity or high-risk accounts; new mandatory insurance with cedents and facultative accounts. For engineering, most overseas construction projects are likely to be “broker handled”. In addition, Korean companies, both large and small, are accelerating their entry to global markets, added Son.

M&A, new ventures
Korean brokers have been involved in many international networks for a long time. LK, for example, is an affiliate member of Brokerslink, while HIS Insurance Services is part of the Gallagher network, while the likes of Aon, WTW, Marsh and Howden have offices in the country.

Lockton’s recent decision to expand in South Korea is another example of international companies eyeing the potential of the country to offer more bespoke and specialist advice to corporations. Lockton (Korea) has bought a financial lines broker called ESOP, also known as Ed.

New Lockton chief executive Son established ESOP in 2019, which grew to around 20 people specialising in reinsurance and retail, with clients including financial institutions, investment banks, asset management companies and private equity firms. The company recorded revenue of US$2.2 million in 2021. The deal means Lockton’s team in Korea will grow to around 50 staff.

Lockton wants to provide new reinsurance capacity to the market through its global network and plans to participate in global programmes and to participate in the reinsurance facultative market, which Son claims that some local brokers are facing difficulties with.

London Lloyd’s broker Ramon’s deal in Seoul for CKI Korea — to be rebranded Ramon Korea – has also added to the growing expertise in the country. Lines include marine, casualty and treaty.

Meanwhile, LK Insurance has been expanding abroad by setting up a reinsurance broker in Singapore to tap the fast-growing South-East Asian markets.

Expect more M&A and partnership agreements to come over the next 18 months as the market continues to become more sophisticated, and expect the Korean broker community to keep on getting stronger despite headwinds such as the pandemic and rising inflation.

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