By Lee Min-hyung
Hanwha General Insurance is feeling uneasy over Kakao’s move to launch a digital insurer, amid fears that its own subsidiary Carrot Insurance will lose more ground to the big tech firm.
The non-life insurance arm of Hanwha, together with a group of Korea’s leading tech firms ― such as SK Telecom and Hyundai Motor ― established Carrot Insurance in 2019. Hanwha General Insurance owns a 51.6 percent stake in the nation’s first and only digital insurer. Carrot is expanding its influence rapidly in the Korean car insurance market by winning more than 200,000 subscribers for its pay-as-you-go service, although it has only been 15 months since its launch.
But with the Financial Services Commission (FSC) granting preliminary approval last week to KakaoPay’s plan to establish a digital non-life insurer here, Hanwha and Carrot are paying keen attention to what could be Kakao’s next plan.
Kakao is Korea’s dominant mobile messenger app operator and operates dozens of platform-related subsidiaries in various areas, such as a mobile payment service, a ride-hailing service and a mobile-only bank.
The company is viewed as an unparalleled mobile platform operator in the Korean market. It intends to widen its revenue streams in the financial sector, an area that it has not yet tapped. After the successful launch of KakaoBank back in 2017, Kakao submitted an application last December for a license to start its own insurance business.
Kakao is set to get final permission from the FSC by 2021, which will mark the first time for a big tech company to expand its business into the insurance sector. The company will then start offering insurance products in the first half of 2022.
Industry sources have said that existing insurers that rely heavily on young customers in their 20s and 30s could be hit hard after the launch of Kakao’s insurance business.
“Given that Kakao’s financial units ― KakaoBank and KakaoPay ― are positioned to win more backing from younger age groups, the same should be the case for the firm’s digital insurance subsidiary,” an insurance industry source said.
Against this backdrop, Carrot Insurance will likely be hit hardest by Kakao’s move, as the two firms’ user bases will overlap, in that their target customers tend to be comfortable and savvy with digital transactions, according to the source.
This situation is shown in the movements of the two companies’ stock prices. Following the FSC’s announcement to grant preliminary approval for Kakao’s insurance business, Kakao’s stock price has continued to soar to record highs. The company closed at 135,500 won Friday, up by 2,000 won or 1.5 percent, from the previous trading day.
However, Hanwha General Insurance’s stock price has been on a downward trend during the same period. The firm’s stock price closed Friday at 4,565 won, down by 30 won or 0.65 percent.
Another source in the insurance industry also said that Kakao’s insurance business could make a soft landing due to KakaoPay’s rich customer base. By April this year, KakaoPay’s number of subscribers reached 36 million, exceeding that of conventional, big non-life insurance players, most of whom have less than 10 million users each here.
“Kakao will likely start by launching unconventional insurance products, such as for travelers or those who need insurance for protecting their smartphones from damage,” the source said. “The company will then expand the coverage area into more diverse sectors, such as car insurance. In this case, Carrot Insurance will be exposed to the risk of losing its customers to Kakao.”
“Kakao will have to expand its insurance business eventually into conventional sectors, as the aforementioned mini-insurance products do not guarantee high returns and are not lucrative enough to drive the firm’s sustainable growth.”
Last year, KakaoPay started expressing strong interest in opening a car insurance business. The company and Samsung Fire & Marine Insurance were in talks to establish a joint digital insurer, but the plan fell through.
“Other non-life insurers in Korea will have to set a specific strategy to minimize customer turnover, after Kakao makes inroads aggressively into a wide range of insurance areas based on its unrivaled platform power,” the source said.
Jun Bae-seung, an analyst at eBest Investment & Securities, also said that existing non-life insurers should brace for tough competition with Kakao.
“Kakao will start its insurance business with the focus on mini-insurance products in the short run, but is also capable of tapping into the car insurance sector,” the analyst said. “Existing insurers should keep making investments in their digital sales channels and enhancing expertise in that area.”