November 23, 2024

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Samsung Fire & Marine Insurance’s headquarters in Seocho-gu, Seoul. (Samsung Fire & Marine Insurance)

Samsung Fire & Marine Insurance, the nation's leading non-life insurer, has ceased selling insurance products through bank channels, commonly known as "bancassurance."

As of January, Samsung Fire & Marine Insurance has halted all new sales through banks, following a consistent decline in sales through this channel, according to an official from the company.

This decision comes after 21 years since the company first introduced bancassurance in 2003.

Bancassurance allows insurers to leverage commercial banks' extensive client bases and numerous customer touch points for sales.

Despite its convenience, bancassurance has experienced a steady decline in its use among non-life insurers, mainly as most insurance products sold through banks are savings insurances, such as pensions, which non-life insurers have been downsizing on.

"Many savings insurances offer substantial returns after 10 years, posing a significant barrier for new entrants," according to an official from the Samsung Fire & Marine Insurance. "Moreover, recent spikes in interest rates for short-term savings products at banks have led customers to favor bank products over insurance offerings as their existing policies mature."

The lack of profitability has also played a role in the decline in sales of savings insurance.

In contrast to guarantee-based products, like property or health insurance, which serve to provide protection, savings products obligate insurers to reimburse the original principal plus accumulated revenue to customers when the policy matures.

"Given the relatively limited revenue, non-life insurers find little incentive to heavily promote savings products. In this regard, bancassurance wasn't a particularly beneficial sales channel for those firms from the first place," commented an industry source who spoke on condition of anonymity.

Data also reflects such trend.

According to statics compiled by the Financial Supervisory Service, income from bancassurance sales for non-life insurers dropped by 16 percent from 6.3 trillion won ($4.66 billion) in 2018 to 5.3 trillion won in 2022, while life insurers witnessed a staggering 300 percent surge to 17.9 trillion won during the same period. In terms of sales volume, non-life insurers accounted for only 2 percent of insurance products sold at banks during the first half of last year.

The implementation of International Financial Reporting Standard 17 last year also contributed to the downturn in bancassurance. IFRS 17 imposes stricter standards on insurers for reporting their balance sheets, with most savings insurance being excluded from sales and classified as liabilities.

The introduction of IFRS 17 resulted in a 38 percent drop in the sales of savings products for life insurers as well last year, reflecting the impact on the broader industry.

More non-life insurers are anticipated to follow suit in completely removing bancassurance from their local sales channels. Prior to Samsung Fire & Marine Insurance, other major non-life insurers such as those of Meritz and Heungkook, had already ceased their bancassurance sales.

By Choi Ji-won (jwc@heraldcorp.com)
The Korea Herald