Expansion of insurance companies‘ work area and changes in regulations on ownership of subsidiaries

Abstract

The Insurance Business Law(“IBL”) prohibits insurance companies from owning other companies exceeding 15%, and allows ownership of subsidiaries by exception only in industries listed in the law. The IBL limits the subsidiaries' work area to prevent risks arising in areas unrelated to the insurance business from spreading to insurance companies and damaging their financial soundness, and to secure insurance companies’ expertise by preventing deviation from their main business. However, the rapid technological development of the 4th Industrial Revolution changed social and economic environment surrounding insurance industry, and thus, increasing efficiency, securing global competitiveness, and providing financial consumer benefits have been gaining more and more importance in discussing regulation on insurance companies’ work area through subsidiaries. To reflect the changed environment and demand, the government has alleviated regulations several times since 2018. These government measures are expected to contribute to revitalizing investment in fintech and healthcare companies etc. by insurance companies. However, as the scope of work allowed to insurance companies’subsidiaries is still limited, it is concerned that it will be difficult for insurance companies to try various new types of business in response to changes in the social and economic environment, and further discussions on improving regulations on expanding the scope of subsidiaries continue. The work area of an insurance company affects the competitiveness and survival of the insurance company. The expertise of the insurance industry is no longer achievable by focusing on the traditional insurance industry in the changed environment brought by the technological development of the 4th Industrial Revolution, and insurance companies are looking for new growth engines in response to growth limits caused by demographic changes and market maturity. This study will look at how insurance companies' regulations on subsidiary ownership have changed since 2018, evaluate the performance and limitations of regulatory improvement achieved so far, and discuss considerations for future improvement.