Paying Extra to Resell High-Interest Insurance?…Insurers Say "Will Customers Be Convinced?" (Comprehensive)

"Convincing Customers with High-Interest Insurance Holdings Is Not Easy"

[Asia Economy Reporter Oh Hyung-gil] Financial authorities are considering measures such as insurance repurchase to ease the severe management difficulties faced by insurance companies, but criticism is already emerging that these measures are out of touch with reality. It is pointed out that the 'same bed, different dreams (同床異夢)' between the authorities and the industry is only increasing confusion among insurance consumers.

According to the insurance industry on the 8th, the Financial Services Commission recently began reviewing the introduction of a 'repurchase system' in which insurance companies buy back high-interest fixed-rate insurance contracts sold in the past from policyholders. Insurance repurchase allows insurance companies to buy back insurance contracts from policyholders by paying a premium, enabling the cancellation of those contracts.

The authorities are paying attention to overseas cases such as Belgium. Belgian insurance companies reduced liabilities by repurchasing contracts from holders of existing high-interest fixed-rate insurance products, paying a premium of 10-25% on top of the surrender value.

In South Korea, high-interest fixed-rate insurance, which promised interest payments of over 5% annually and was sold until the early 2000s, is now facing increased financial risks such as negative spread and reserve requirements due to the current low-interest-rate environment. Amid a growing consensus on the need for proactive management, 'insurance repurchase' has emerged as a potential solution.

However, the insurance industry is skeptical about whether the measure will be as effective as expected, as persuading customers holding high-interest products is not easy.

As of the end of June last year, out of KRW 589.3 trillion in premium reserves of life insurance companies, fixed-rate products accounted for 41.5%, or KRW 244.4 trillion. Products sold with high interest rates of over 5% accounted for 25.4%.

An official from a major life insurer said, "It is nearly impossible to persuade customers to cancel contracts without offering them money above the guaranteed interest rate or equivalent benefits. Some insurers are already struggling to secure funds as sales decline, so asking them to spend huge sums on repurchasing insurance is unreasonable," he lamented.

There are also voices that the reinsurance system, which involves transferring high-interest insurance to reinsurers for a fee, lacks effectiveness. A reinsurer official pointed out, "Some overseas reinsurers might show interest, but high-interest insurance tends to have low lapse rates and low risk, so it is not attractive for underwriting."

Additionally, the authorities are encouraging contract conversion by applying a differential system to the 'new indemnity health insurance,' where those who receive more insurance benefits pay higher premiums, and those who receive less pay lower premiums.

This is a plan to reduce the burden of premium increases. Insurance companies plan to raise premiums by 9-10% for 'old indemnity insurance' sold before 2017 early this year. Conversely, premiums for the new indemnity insurance launched after that are expected to decrease by about 9-10%.

Although the premium gap will widen, it is expected that consumers will find it difficult to switch to new products. This is because most old indemnity insurance policies have no deductible (new indemnity insurance has a 10% deductible since 2009). Since the launch of new indemnity insurance in 2017, only 7.4% of policyholders had switched by the first half of last year.

An official from a non-life insurance company predicted, "From the consumer's perspective, they are unlikely to cancel indemnity insurance without a deductible just because the annual premium increases by a few tens of thousands of won. Only younger people who rarely claim insurance might consider switching."

This content was produced with the assistance of AI translation services.