The Number of Insurance Policies Terminated Before Two Years Increases... Soundness Shows 'Red Light'

[Asia Economy Reporter Oh Hyung-gil] The insurance policy retention rate, an indicator of insurance companies' customer management capabilities, has been found to be significantly declining.

As the number of consumers maintaining their policies for more than two years decreases, concerns are rising not only about the deterioration of insurers' soundness but also about the weakening of their core driving force. In particular, due to the COVID-19 pandemic, insurance retention rates are expected to decline further this year, highlighting the urgent need for better policyholder management.

According to the insurance industry on the 24th, the insurance policy retention rates of life and non-life insurers mostly dropped sharply compared to the previous year. The insurance policy retention rate refers to the percentage of policies maintained without cancellation after the initial contract and is used as an indicator to assess incomplete sales rates, consumer satisfaction, and contract management capabilities.

The 13th (25th) installment retention rate refers to the percentage of contracts where insurance premiums have been paid 13 (25) times monthly after the contract was signed. A lower retention rate indicates frequent cases where insurance contracts are canceled before reaching 1 (2) years.

While the 13th installment retention rate slightly declined or remained stable, the 25th installment retention rate dropped significantly. As of the end of last year, Samsung Life Insurance's 25th installment retention rate was 60.98%, down 5.22 percentage points from 66.20% the previous year. Since recording 70.00% in 2017, the decline has been steep. However, the 13th installment retention rate slightly improved from 81.24% to 81.43%.

Hanwha Life and Kyobo Life Insurance also recorded 25th installment retention rates of 60.13% and 63.92%, respectively, down 2 to 4 percentage points compared to the same period last year. Notably, NH Nonghyup Life Insurance's 25th installment retention rate fell nearly 10 percentage points from 71.72% in 2018 to 61.79% last year.

The situation is similar for non-life insurers focusing on long-term insurance sales. Samsung Fire & Marine Insurance's 25th installment retention rate decreased by about 5 percentage points from 66.82% to 61.87%. Hyundai Marine & Fire Insurance, KB Insurance, and Meritz Fire & Marine Insurance, which previously had retention rates above 70%, also dropped to the 60% range.

An official from a life insurance company expressed concern, saying, "The insurance policy retention rate is a representative customer management indicator, and in advanced insurance markets such as Japan and Europe, the 25th installment retention rate is used to assess market soundness. Many small and medium-sized life and non-life insurers have 25th installment retention rates at only half, causing significant difficulties."

The decline in retention rates is attributed to incomplete sales by insurance planners. A typical case is selling whole life insurance disguised as savings-type insurance. Economic difficulties making premium payments challenging and the increase in insurance remodeling services are also cited as causes of the retention rate decline.

The industry fears that the retention rate will drop further this year as consumers increasingly cancel insurance policies due to COVID-19. In the first quarter of this year, the surrender refund payments of major life and non-life insurers reached 7.6 trillion won, about 15% higher than the same period last year.

A life insurance industry official pointed out, "If complete sales and after-sales management are not properly conducted from the customer acquisition stage, the retention rate declines. To raise the retention rate, reducing incomplete sales is paramount."

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