Follow along as Korean insurers target population decline with innovative new products that have improved the customer experience and helped insurers overcome stagnant growth amid intensifying competition.
In addition to its rapidly aging population, Korea's total fertility rate has fallen to 0.78 as of 2022. Population decline has emerged as one of the biggest challenges to the market鈥檚 life and health insurance industry.
As the number of healthy customers in their 30s and 50s declines, and with marketing to Millennials and Gen Z not yet proving very effective, Korean insurers have explored a strategy of expanding insurance sales to older-age customers via simplified issue (SI) products. At the same time, they have focused on innovating the underwriting process using data analytics and digital technologies to improve the customer experience and overcome stagnant growth amid intensifying competition.
Insurers launched the first guaranteed issue (GI) products for death benefits in Korea in 2007. By combining a small portion of standard insureds who prefer a simplified process with substandard groups, underwriters expected to create a reasonable risk pool. But because the product was marketed exclusively to the impaired, the actual claims experience was worse than anticipated. As a result, a negative perception of products for substandard customers spread across the industry, and for several years insurers dropped their attempts to develop SI/GI products.
In 2011, insurers introduced cancer insurance products with partially simplified underwriting. The products targeted senior customers and used standard underwriting while relaxing medical disclosures for hypertension and diabetes. This approach achieved decent success in terms of sales and profitability and helped give market players some confidence in developing SI products.
In 2012, a major multinational insurer in Korea successfully launched a market-first SI product. This product attracted attention because it allowed insureds to immediately understand whether they could apply or not, despite a preexisting condition, based on three underwriting questions. By addressing the pain points of customers who were unsure whether to enroll even after disclosing their medical history, its sales performance exceeded initial expectations despite carrying an average premium 1.5 times higher than standard products. However, due to concerns about its loss ratio, few companies attempted to develop similar products.
One year after the launch, the number of participants began to increase as word spread that the product鈥檚 early claims ratio was better than anticipated. Insurers that had focused their coverage on hospitalization and surgery expanded coverage to diagnosis and other treatments. In addition, as comprehensive coverage became more granular and the issuable age expanded, the market grew explosively starting in 2015.
By 2017, the industry began to see new types of SI products that broke the mold of the existing simplified disclosures. For example, SI products appeared that removed the most commonly adopted question (鈥淗ave you been hospitalized or had surgery history within the last two years?鈥) or increased the period from two years to five, thus enabling more reasonable premiums for those with a history of illness similar to that of standard insureds. In the cancer market, an insurer launched a product that required only one disclosure, which asked whether the applicant had a history of cancer or liver cirrhosis within the last five years.
Amid increasing competition in the impaired insurance market, an innovative product emerged in 2022 that categorizes an applicant鈥檚 impaired status in detail and offers a customized rate corresponding to each risk. In other words, for customers who have experienced hospitalization or surgery for the purpose of treatment within the previous five years, the elapsed period after treatment is divided into five different risk groups, from one year to five years. The product then applies a different risk premium to each group. The apparent inspiration for the product came from a customer who challenged the reasonableness of applying the same risk profile to a person with a two-year history and a person who has been healthy for five years after hospitalization or surgery.
Another innovative feature of the product is that if even a customer initially enrolls in the most expensive category (i.e., less than one year has passed since the last treatment), the insurer will automatically switch the insured person to the next, less expensive category if they file no claims for one year.
Just as insurers have developed customized rates for substandard customers by considering different degrees of pre-existing conditions, they are actively carrying out risk segmentation for standard customers as well. This has been enabled mainly by advances in digital technologies and the active use of data promoted by government policy.
In another case of product innovation, a domestic Korean insurer launched a product in 2022 that determines a customer鈥檚 health status according to an algorithm that uses medical checkup results, medication information, and insurance claims data obtained through API. The algorithm processes information in real time and proposes a corresponding rate. Customers are classified into nine risk groups based on their risk score, and those in the top group can enroll with a nearly 40% discount compared to the lowest group. In addition, the application contains only one underwriting question (鈥淗ave you ever received a recommendation from your doctor for hospitalization/surgery or re-examination within the last three months?鈥). The rest of the underwriting is completed using digitally based data. With this product, the insurer drastically reduced its omitted disclosures, which result in policy cancellations and associated customer complaints.
As it becomes increasingly difficult to differentiate products in the Korean market, large companies are making efforts to improve the customer experience.
Normally, a customer who wants to buy life insurance needs to go through at least two steps. In the first meeting, an agent provides a quote, processes the application, requests disclosures, and accepts an initial premium payment. Next, final enrollment is determined through the underwriting process. However, if applicants spend time filling out the application and waiting for the underwriting result only to be declined, that experience diminishes their perception of the insurer and of insurance in general. Customers may also rescind their application if they must wait longer on underwriting decisions.
To solve that pain point, Korean insurers have accelerated standard underwriting processes based on disclosures and available data. By implementing a smart pre-underwriting system using sophisticated predictive models, some large players have achieved a 70% automatic approval ratio at the point of sale.
Recently in the Korean market, insurers have attempted to introduce pre-underwriting to reduce the higher rejection rate associated with SI products.
With the typical SI product, if applicants answered 鈥測es鈥 to any of the shortened list of underwriting questions, the application is declined or routed to human underwriters for a separate review. Under the advanced pre-underwriting system, however, previously rejected insureds who disclose a mild illness can be approved for coverage without significantly affecting future loss ratios. Here's how it works: Customer disclosures are fed into a predefined expected loss rate prediction algorithm and then automatically screened to determine whether the risk is acceptable. This approach converts conventional underwriting practices solely focused on medical perspective to a method based on loss ratio predictions.
This kind of advanced pre-underwriting based on loss ratio predictions is expected to improve the customer experience by not only making insurance more accessible for impaired or elderly customers, but also allowing standard insureds to immediately learn about the possibility of enrollment and the need to submit any supplementary documents.
Innovations around the insurance application and enrollment process 鈥 and the achievement of more reasonable rates through sophisticated risk segmentation 鈥 is a win-win for customers, agents, and insurers. From Korea鈥檚 evolution in products and services, we see a shift in underwriting approaches focused on using the same standards regardless of the insured's health status, allowing for identical onboarding experiences for both standard insureds and impaired/preferred. This will be enabled by more advanced pre-underwriting techniques based on sophisticated data analytics and digital technologies.
If trends continue in the Korean market, industry insiders see the possibility of some life insurance companies shifting their operating model to provide coverage and rates commensurate with individual risk and possibly eliminating rejections altogether. Regardless, Korea鈥檚 long journey with SI will certainly lead to once unachievable destinations. Insurers would be well advised to keep their eyes on the road ahead.
RGA has served as a leading innovator in the SI space in Japan and Korea for years, partnering with insurers to develop products that successfully speed the customer journey and expand coverage to underserved populations. Contact us to learn how RGA can help your team to create new offerings to meet the needs of customers in your market.
