Update of the Experience Life Table in Korea

The Korea Insurance Development Institute (KIDI) completed the revision of the 10th Experience Life Table in November 2023 based on life insurance policyholder statistics.

The Experience Life Table is compiled every five years in accordance with the Insurance Business Act and applicable regulations, starting with its first edition in 1988. It is based on observations of mortality rates among life insurance policyholders and presents gender- and age-specific mortality rates. This table serves as the foundation for calculating life expectancy at certain ages²⁾ by gender and age.

The Experience Life Table, based on the average mortality rates in the insurance industry, is utilized as a national mortality indicator alongside Statistics Korea's National Life Table, which covers the entire population. Unlike the National Life Table, which reflects data from the general population, the Experience Life Table is specifically derived from life insurance policyholders, highlighting the differences in the observed population groups between the two tables.

Insurers may use the Experience Life Table when their own experience data is insufficient for product development. Additionally, the Experience Life Table is employed in calculating the Insurance Price Index, which is published to help consumers compare insurance prices.

The latest revision of the Experience Life Table indicates that the average life expectancy at birth³⁾ has increased to 86.3 years for men and 90.7 years for women, reflecting gains of 2.8 years and 2.2 years, respectively, compared to five years ago. This increase is attributed to advances in healthcare and higher living standards, which have resulted in lower mortality rates and, consequently, longer life expectancy.

The average life expectancy in the Experience Life Table is 6.4 years higher for men and 5.1 years higher for women compared to the national averages reported by Statistics Korea in 2022, which are 79.9 years for men and 85.6 years for women. This difference is attributed to the fact that life insurance companies typically approve policy applications after conducting health screenings or reviewing medical history disclosures, resulting in a relatively lower mortality rate among insured individuals.

(Source: Korea Insurance Development Institute, Jan 8, 2024)

The increase in average life expectancy has slowed compared to previous years, and the gap in life expectancy between men and women has gradually narrowed.

(Source: Korea Insurance Development Institute, Jan 8, 2024)

The life expectancy at age 65 is 23.7 years for men and 27.1 years for women, an increase of 2.3 years and 1.9 years, respectively, compared to the 9th edition of the Experience Life Table. This indicates that it has become increasingly important for individuals to buy insurance to prepare for post-retirement healthcare costs or income security.

With advances in medical technology and other factors leading to increased average life expectancy and longer life expectancy at older ages, interest in post-retirement healthcare costs and income security is expected to rise. Consequently, insurance products need to be designed from a long-term perspective, covering the period from active economic years (capital accumulation) to retirement (protection needs).

As previously mentioned, the gap in life expectancy between men and women is gradually narrowing, primarily due to a significant reduction in mortality rates among older men. Consequently, there is a growing need to focus on annuity insurance for retirement income security and healthcare-linked insurance products that support a healthy retirement lifestyle.

Rising Life Expectancy Presents both Challenges and Opportunities to (Re)insurers

As people live longer, there is a growing need for insurance that covers the costs associated with long-term care, such as assisted living or nursing home care. Insurers are responding by developing new long-term care insurance products or adding care benefits to existing policies. Some life insurers are offering discounts and incentives for policyholders who adopt healthier lifestyles, such as quitting smoking, losing weight, or managing chronic conditions like diabetes. This can reduce claims over time and align with the trend toward preventive healthcare.

Life insurers, in particular, are increasingly exposed to longevity risk, as people are living longer than their actuarial models previously predicted. This means that the benefits they must pay, especially in the form of annuities and pensions, extend over longer periods than expected, leading to higher financial liabilities.

In this respect, insurers are revising their actuarial models to design new products. Reinsurers collaborate with insurers to design new life and health insurance products that are better suited to the reality of longer lifespans. Reinsurers contribute to this product development process by providing risk assessments, pricing guidance, and capital support for these innovative products.

Insurers are also working to figure out appropriate arrangements to transfer longevity risks to third parties via longevity bonds or reinsurance agreements. These risk management arrangements allow them to hedge against the risk that people will live longer than expected. Reinsurers possess the sophisticated actuarial and data analytics capabilities needed to model longevity trends comprehensively. They use large datasets, advanced analytics, and global longevity studies to refine predictions about how long people are likely to live, allowing primary insurers to price their products more accurately and manage reserves better with the support of reinsurance capacity.

By offloading some of their longevity risk to reinsurers, insurers can reduce the capital they need to hold under the regulatory framework. Reinsurers help insurers free up capital that would otherwise be tied up to cover their long-term liabilities, allowing them to operate more flexibly.

These risk management efforts help both insurers and reinsurers navigate the uncertainties associated with rising life expectancy, particularly as factors like healthcare improvements, lifestyle changes, and new medical technologies continue to push longevity rates higher. Their role in addressing this trend of increasing life expectancy is critical in ensuring that both individuals and society as a whole can manage the financial implications of living longer.

Analysis on Large Insured Losses in 2023

The major large insured losses in 2023 were reviewed and categorized into four groups: property, engineering, casualty, and marine insurance. Within the property category, most incidents involved comprehensive property insurance claims. Notable examples include KRW 301 billion in damages from the Hankook Tire fire, which affected buildings and inventory; KRW 118 billion from gas turbine damage; and KRW 100 billion in business interruption losses due to fire.

(Source: The Risk, 2024 No1. Vol.19, Korean Re, June 18, 2024)

Engineering insurance primarily covers losses related to fires and natural disasters, such as fire damage from Energy Storage System (ESS) incidents, flooding from heavy rainfall, and fires caused by welding sparks. Additionally, there was an incident involving the collapse of an underground parking garage in a high-rise building.

(Source: The Risk, 2024 No1. Vol.19, Korean Re, June 18, 2024)

In casualty, 4 out of 9 high-value claims were related to professional liability (KRW 33.5 billion), and 5 were related to general liability (KRW 26.5 billion). The professional liability claims were primarily due to shareholder derivative lawsuits and director & officer (D&O) liability resulting from wrongful termination, as well as design defects and installation errors. The general liability claims mainly involved fire incidents related to ESS batteries, distribution board defects, and negligence.

(Source: The Risk, 2024 No1. Vol.19, Korean Re, June 18, 2024)

In the marine category, there were 7 overseas losses (KRW 87 billion) and 5 domestic losses (KRW 22 billion). The average loss amount per incident was KRW 12.43 billion for overseas losses and KRW 4.4 billion for domestic ones. Out of the 12 losses, 7 occurred during the colder months of November, December, and February. The causes of the incidents varied, including damage, fire, submersion, explosion, sinking, destruction, and falls.

(Source: The Risk, 2024 No1. Vol.19, Korean Re, June 18, 2024)

Property Claims for the Past 10 Years

Over the span of 10 years (2014-2023), the average annual number of incidents was 13,974. The highest number of incidents occurred in 2019, with 19,217 cases, while the lowest was in 2015, with 9,060 cases. The average annual gross losses amounted to KRW 933.8 billion, with the highest gross losses recorded in 2023 at KRW 1.6 trillion, and the lowest in 2018 at KRW 513.3 billion. Over the decade, the average loss amount per incident was KRW 66.8 million, with the highest loss amount per incident reaching KRW 115.6 million in 2023, and the lowest at KRW 29.7 million in 2019.

Due to the increasing impact of natural disasters, the number of incidents has significantly risen to over 10,000 annually since 2016, with an average annual incident count of 15,116 over the eight years following 2016. Excluding the heavy rainfall during the summer of 2017, the high proportion of incidents was predominantly caused by typhoons in 2016, 2018, 2019, 2020, and 2022.

(Source: The Risk, 2024 No1. Vol.19, Korean Re, June 18, 2024)

An analysis of loss amounts by industry sector reveals significant annual fluctuations. Over a ten-year average, the distribution of loss proportions by industry is as follows: machinery and equipment accounts for 20%, petro/chemicals for 23%, warehousing for 14%, electrics for 5%, and foods for 4%. The remaining 33% is distributed among other industries.

*Percentages may not total 100 due to rounding (Source: The Risk, 2024 No1. Vol.19, Korean Re, June 18, 2024)

When examining the proportion of loss amounts by cause of accident, fire consistently accounts for the majority of losses regardless of the year. Over a ten-year average, the distribution of loss amounts by cause is as follows: fire at 67%, physical damage at 9%, natural disasters at 14%, and other causes at 10%.

*Percentages may not total 100 due to rounding (Source: The Risk, 2024 No1. Vol.19, Korean Re, June 18, 2024)

An analysis of monthly loss amounts shows that March, May, June, August, and September typically experience losses above the average. In particular, March, June, and September see losses that exceed the average by more than 20%. In contrast, loss amounts are relatively lower during the winter months, as natural disasters cause minimal damage during this time.

(Source: The Risk, 2024 No1. Vol.19, Korean Re, June 18, 2024)

When examining the financial damage caused by natural disasters over the years, it is clear that losses were minimal in 2014-2015, 2017, and 2023, which saw less impact from typhoons. In contrast, significant losses were recorded in years heavily affected by typhoons, such as Typhoon Chaba in 2016, Typhoons Soulik and Kongrey in 2018, Typhoon Lingling in 2019, Typhoons Bavi, Maysak, and Haishen in 2020, and Typhoon Hinnamnor in 2022.

When analyzing the damage by cause of natural disasters, typhoons account for 59.4%, heavy rain for 18.6%, lightning for 3.6%, earthquakes for 1.5%, snow damage for 0.6%, and other causes for 16.3%. The combined damage from typhoons and heavy rain constitutes the majority, totaling 79%.

(Source: The Risk, 2024 No1. Vol.19, Korean Re, June 18, 2024)

When examining large insured losses exceeding KRW 10 billion, the average number of such incidents per year is 8.6, with a total loss amount of KRW 478.9 billion. The number of incidents decreased from 6-9 cases per year during 2014-2017 to 2-3 cases in 2018-2019, but then significantly increased again starting in 2020, reaching 7-18 cases annually from 2020 to 2023. The loss amounts followed a similar trend, with the lowest recorded at KRW 33.7 billion in 2019 and the highest at KRW 1.09 trillion in 2023.

(Source: The Risk, 2024 No1. Vol.19, Korean Re, June 18, 2024)

The major large insured losses from 2014 to 2023 are as follows:

(Source: The Risk, 2024 No1. Vol.19, Korean Re, June 18, 2024)

Health Risks and Long-Term Care

In the Health Risks and Long-Term Care category, the survey delved into four areas: physical health, mental health, personal long-term care, and family long-term care.

The level of concern was measured on a scale from 1 (not concerned at all) to 6 (very concerned), and the level of preparedness was measured on a scale from 1 (not prepared at all) to 6 (fully prepared). The methods of preparedness were assessed using multiple response options.

Overall, while there was moderate concern about physical health (4.20), the level of preparedness (3.68) was found to be inadequate. Mental health was neither a major concern nor a significant area of preparedness. Both personal long-term care and family long-term care were areas of concern, but preparedness was lacking. Notably, concern about family long-term care was slightly higher than concern about personal long-term care, and thus the level of preparedness for family long-term care was higher than for personal long-term care.

(Source: 2023 Insurance Consumer Behavior Study: Risk Management by Age Group, Korea Insurance Research Institute, March 2024)

The survey explored various strategies for maintaining physical health, such as buying insurance, regular exercise, healthy eating habits, taking nutritional supplements, regular health check-ups, and saving for medical expenses. The results revealed that individuals in their 20s preferred regular exercise, while those in their 30s, 40s, and 50s were more inclined to purchase insurance. Respondents in their 60s also prioritized regular exercise. This suggests that the middle-aged and older age groups, who constitute the majority of the working population, primarily rely on insurance products to manage health-related risks.

In terms of mental health preparedness, most respondents favored meditation as their primary method of managing risks.

For personal care preparedness, those in their 20s prioritized saving, followed by long-term care insurance and private insurance. However, respondents in their 30s to 60s generally ranked long-term care insurance first, followed by saving and private insurance.

When it came to preparing for family care, individuals in their 20s and 50s prioritized saving, followed by long-term care insurance and private insurance, while those in their 30s, 40s, and 60s placed long-term care insurance first, followed by saving and private insurance.

Retirement and Death

A survey of 1,670 non-retirees revealed that concerns about retirement were high (4.27), while preparedness was found to be lacking (2.96). The expected retirement age was generally in the 60s, with those in their 20s to 40s anticipating retirement around 61 years old, those in their 50s expecting to retire at 63, and respondents in their 60s anticipating retirement at 67. Notably, the expected retirement age significantly increased with advancing age.

The survey on retirement preparation methods showed that across all age groups, the most common approaches were the National Pension, followed by deposits, savings, and savings-type insurance, and then annuities (including retirement annuities and individual pensions).

The degree of preparedness for one's own death was assessed at 2.60, falling below the median value of 3.0. Notably, a positive correlation was observed between age and the level of preparedness, with older individuals demonstrating a higher degree of readiness.

As age increased, the most common method of preparing for death was planning for funeral arrangements and setting aside funds for those expenses. This was followed by organizing and storing important documents, preparing an advance directive for life-sustaining treatment, managing digital assets after death, and creating a will. However, the differences in preference among these methods were minimal.

(Source: 2023 Insurance Consumer Behavior Study: Risk Management by Age Group, Korea Insurance Research Institute, March 2024)

Income Flow and Risk of Property Damage

Income flow was assessed separately for cases of unemployment and business closure. Property damage was examined in categories including liability for everyday life, property damage (such as fire or theft), and online privacy and security incidents.

Concerns about unemployment were high (3.46), but preparedness was found to be low (3.07). Among self-employed individuals (n=155), concerns about business closure were even higher (3.93), while preparedness was significantly lacking (3.19).

To prepare for unemployment, more than 70% of respondents across all age groups identified job training as their primary strategy, followed by savings (34.7%) and securing a side job (32.4%). For self-employed individuals, about half of the respondents in all age groups cited savings as their main method of preparing for business closure, followed by job hunting preparation, developing new business ideas, and creating emergency plans. Notably, younger age groups were more likely to prioritize job hunting preparation.

Concerns about liability coverage arising from everyday activities were high (3.93), but preparedness was lacking (3.06). Concerns about property damage, such as fire and theft, were relatively lower (3.32), with preparedness even lower (2.90) compared to liability coverage. Although concerns about online privacy and security incidents were also high (3.69), preparedness was the lowest (2.84). Notably, concerns about online incidents increased with age, while preparedness remained relatively low across age groups.

Methods for addressing indemnity include reducing the likelihood of liability occurrences (49.6%), establishing emergency funds through savings (48.0%), and buying general liability insurance (42.4%).

Methods for addressing property damage include efforts to reduce the likelihood of incidents through theft prevention devices and fire prevention measures (58.2%), while only 35.4% prepared for risks through insurance coverage.

Methods for addressing cyber incidents include password management (68.6%), using cybersecurity software (61.5%), and employing multi-factor authentication (33.7%). However, only 2.7% bought cyber risk-related insurance.

(Source: 2023 Insurance Consumer Behavior Study: Risk Management by Age Group, Korea Insurance Research Institute, March 2024)

Insurance Take-Up Status

We investigated insurance take-up status and reasons for not buying insurance in relation to risk management across the age groups examined so far.

The survey on insurance take-up by age group revealed that the highest rates of coverage were for medical expense insurance, critical illness insurance, personal accident insurance, and life insurance, in that order.

Non-buyers cited several reasons for not purchasing medical expense insurance, critical illness insurance, and personal accident insurance, including a perceived lack of necessity, high premiums relative to coverage, limited protection, and exclusions, as well as insufficient income to afford the premiums. Notably, respondents in their 20s reported a high rate of non-purchase due to a lack of understanding about the insurance products and their coverage scope.

(Source: 2023 Insurance Consumer Behavior Study: Risk Management by Age Group, Korea Insurance Research Institute, March 2024)

The take-up rate for personal care insurance increased with age, while family care insurance remained consistently between 13-15% across all age groups.

Reasons for not buying both personal and family care insurance included a lack of understanding of the products, and premiums being expensive relative to the coverage and payout amounts. Particularly for those under 40, a significant reason was a lack of familiarity with the insurance products.

(Source: 2023 Insurance Consumer Behavior Study: Risk Management by Age Group, Korea Insurance Research Institute, March 2024)

The breakdown of pensions for retirement preparation shows that public pensions hold the largest segment, followed by employer pensions and individual pensions.

Approximately half of those without pension plans cited insufficient income as the reason for not being insured, while 22% were not aware of the products available.

(Source: 2023 Insurance Consumer Behavior Study: Risk Management by Age Group, Korea Insurance Research Institute, March 2024)

Insurance subscriptions related to property damage encompass six categories: Travel Insurance, Home Fire (Comprehensive) Insurance, Natural Disaster Insurance (including Wind and Flood Damage Riders for Fire Insurance, and Agricultural and Fisheries Disaster Insurance), Mandatory Auto Insurance (Motor I), Voluntary Auto Insurance (Motor II), and Cyber Insurance.

The take-up rate for Travel Insurance exceeded 50% across all age groups, with the exception of those in their 20s. As age increases, there is a corresponding rise in the take-up rate for Mandatory Auto Insurance, with similarly high take-up rates observed for Voluntary Auto Insurance. In contrast, the take-up rate for Home Fire (Comprehensive) Insurance was below 40%, while Natural Disaster Insurance had a take-up rate of less than 10%, and Cyber Insurance had the lowest uptake, with a take-up rate of under 5%.

The most common reason for not buying Travel Insurance was the perception that it was unnecessary, cited by 46% of respondents, while over 20% did not purchase due to a lack of awareness of the product. For Home Fire (Comprehensive) Insurance, the main reason for non-purchase was the perceived lack of necessity (37.9%), followed by a lack of product knowledge (19.3%), and insufficient income to afford the insurance (14.3%). The reasons for not buying Natural Disaster Insurance were the low perceived risk of damage (47.8%) and a lack of product knowledge (22.1%). The main reasons for not purchasing Voluntary Auto Insurance were perceived lack of necessity (37.7%) and a lack of product knowledge (25.3%). For Cyber Insurance, the reasons were the perceived lack of necessity (36.5%) and a lack of product knowledge (36.0%).

The analysis indicates that a significant proportion of non-purchase can be attributed to the perceived lack of necessity and unfamiliarity with the products, highlighting a general low awareness of available insurance options. Consequently, it is essential to enhance awareness through proactive marketing across various channels to better inform potential insurance buyers.

(Source: 2023 Insurance Consumer Behavior Study: Risk Management by Age Group, Korea Insurance Research Institute, March 2024)