"Tears of Insurance Cancellation" Broke 7 Trillion Won in Three Months (Comprehensive)

Economic Downturn and COVID-19 Impact

First Quarter Surrender Refunds Increase by 1 Trillion Won Compared to Last Year

Unable to Prevent Cancellations Despite Persuasion on Principal Loss

"Must Utilize Payment Deferral and Reduced Full Payment Systems"

[Asia Economy Reporter Oh Hyung-gil] As the novel coronavirus disease (COVID-19) crisis prolongs, the number of people canceling their insurance policies to quickly raise funds amid the economic downturn is rapidly increasing.

With corporate and household economies pushed to the brink, it is interpreted that people are enduring by even canceling insurance, which is considered the 'last stronghold.'

According to the insurance industry on the 22nd, the surrender value of major life and non-life insurance companies from January to March this year approached 7.6 trillion won. This is about 1 trillion won more than the same period last year.

Last month, the surrender value of three life insurance companies?Samsung, Kyobo, and Hanwha Life?and five non-life insurers?Samsung Fire & Marine, Hyundai Marine & Fire, DB Insurance, KB Insurance, and Meritz Fire & Marine?was 3.0162 trillion won, a 29.5% surge compared to 2.3295 trillion won in the same period last year. Last month, life insurers’ surrender value was 1.8569 trillion won, and non-life insurers’ was 1.1593 trillion won, increasing by 27.8% and 32.2% respectively year-on-year.

In January this year, the insurance surrender value was 2.2356 trillion won, down 4.6% compared to the same month last year. However, it turned to an upward trend starting in February when COVID-19 began to spread. The surrender value in February was 2.3481 trillion won, a 19.6% increase year-on-year, and the increase in March was even larger.

The increase in insurance cancellations and policy loans (loans secured by insurance premiums) is considered a representative 'recession indicator' for the working-class economy. Since insurance premiums must be paid monthly and a large portion of the initial payment goes to business expenses (commissions), canceling a contract before maturity does not allow the full refund of paid premiums.

Despite the structure where subscribers inevitably incur losses, they are gathering money even at the cost of principal loss because they cannot pay premiums immediately and need cash. The interest rate on policy loans (7.0?9.0% per annum) is higher than bank loan interest rates.

An insurance company official said, "Mainly self-employed customers are consulting about canceling insurance," adding, "We explain to customers who want to cancel that they may not get back the premiums paid or that the surrender value may be less than the premiums paid, but it is difficult to prevent cancellations."

Policy loans secured by surrender values also increased significantly in March. The amount of policy loans executed by major insurers was 2.7009 trillion won in March, a 26.6% increase compared to the same month last year. In January and February, the loan amounts were 1.9773 trillion won and 2.1714 trillion won, respectively.

The problem is that insurance cancellations and policy loans may increase further due to decreased sales of self-employed businesses and rising unemployment rates.

An insurance industry official advised, "If insurance is canceled hastily, it could lead to a bigger crisis," and recommended, "Using systems such as premium payment deferral or reduced paid-up insurance to maintain insurance is a way to minimize losses."

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