Today I want to let you know about a new trend in insurance market these days, as there is on-going discussion on online insurance license.
Nowadays, our daily life is so closely related to ‘online’ activities. Needless to say, the internet and smart phones are always with us, and population using electronic devices are ever growing. One of the other remarkable trends is that products are sold via new online channels. Insurance products are not an exception. For example, a quarter of automobile insurance products was sold online in 2011, while 19 percent in 2008 and 12 percent in 2006. Same trend is shown in indemnity insurance products with 10.9 percent of them sold online. As more and more insurance companies are launching sales on the internet, it is said that a proper regulation is in need to prevent probable damages.
Considering a continuous improvement in IT technology and increasing demand for online purchases, insurance companies will be given license for online sales. This permission will be granted when an insurance company establishes a subsidiary to exclusively deal with online sales. The Subsidiary must be a specialized entity wholly responsible for insurance sales on the internet so as to diversify consumer choices and to reduce insurance prices. To maintain market fairness and promote sound competitions among insurance companies, FSC will introduce related regulations limiting the number of products to be sold.
When granting license for online sales, an insurance company will go through an evaluation process including re-capitalization capability and possibility of mis-selling. Please refer to the explanation for the terms.
- re-capitalization capability : a major shareholder must have a sufficient capacity to increase capital, considering a risk of deficit at an early stage of business.
- possibility of mis-selling : in case of online-selling, mis-selling is more likely to occur. Mis-selling means sales without a proper guidance or explanation about product. It is therefore necessary that insurance products and contract procedures should be thoroughly examined with consideration for consumers.
‘GEICO’ is the first insurance company in the US which initiated telemarketing for their insurance products. They handled insurance claims via phone calls as well as sold insurances products. Since this telemarketing in 80’s, now GEICO and the other company ‘USAA’ are selling their automobile insurance products through various sales channels via post, telephone, and the internet. As a result, offline sales for insurance products are about only ten percent out of the total sales in insurance market. Online sales are especially active for indemnity insurances with a large proportion shared by automobile insurances. Similar trends are also shown in the UK where two thirds of indemnity insurances are sold online. In UK, only about 7 percent of life insurances are sold offline. Likewise, we expect that Korean insurance market will get settled soon in its online sales channels providing more varieties and benefits for consumers.
This is for today’s posting about online insurance license. For further information and update regarding the matter, please stay tuned. Have a good day!