Half of Policyholders Switching Insurance Choose Death Coverage... 'Transfer' with Similar Death Insurance

Increase in Assignment Contracts... Agents Use 'Tricks' to Receive Higher Commissions and Fees

[Asia Economy Reporter Oh Hyung-gil] More than half of the policyholders switching life insurance products are making conversions within the same category of death insurance. As a result, the number of new life insurance contracts has continued to steadily increase for several years.

This is contrary to the business environment of life insurance companies, which are on a downward trend due to a declining insured population caused by aging and low birth rates.

Experts point out that insurance agents, in order to receive higher commissions and fees, have been engaging in deceptive sales tactics called 승환계약 (contract switching), and if this leads to incomplete sales, it could undermine the trustworthiness of the insurance industry.

According to the Life Insurance Association on the 23rd, the total number of new life insurance contracts last year was 15.3 million, a 9.0% increase from 14.03 million in the previous year. The number of new contracts fell from 14.35 million in 2016 to 13.97 million in 2017, but turned to an upward trend starting in 2018.

On the other hand, the number of life insurance cancellations has been increasing. The number of cancellations was 6.17 million in 2016 and 6.19 million in 2017, but jumped to 6.8 million last year. The simultaneous increase in new subscriptions and cancellations is viewed by the insurance industry as evidence that 승환계약 (contract switching) is occurring frequently.

승환계약 refers to signing a new contract while canceling an existing one or changing important terms of an existing insurance contract. It is common to redesign insurance according to age or economic circumstances, similar to insurance remodeling. However, some insurance agents induce unfair 승환계약 by persuading existing customers to switch their contracts to products of a new company when moving to a different insurance agency.

In particular, about half of the 승환계약 cases where existing insurance contracts are canceled and new insurance is purchased within one month involve switching from one death insurance policy to another death insurance policy.

According to a recent exploratory study on life insurance 승환 (contract switching) published in the Journal of Insurance by Baek Cheol, Head of Data Strategy Team at Korea Credit Information Services, and Kim Seok-young, Senior Research Fellow at the Korea Insurance Research Institute, 60.4% of 승환계약 cases where policies were canceled and new ones purchased within one month involved switching to the same category of insurance.

Cases where death insurance was canceled and then re-subscribed to death insurance accounted for 50.3%. The rate of switching from variable insurance to variable insurance was 7.1%, and survival insurance (1.5%) and mixed life insurance (1.5%) also switched within the same category.

The research team explained, "The alignment of interests between the policyholder and the seller is why switching within death insurance is common," adding, "From the policyholder's perspective, subscribing to a new insurance policy can lead to premium reductions due to rate revisions, and sellers can receive higher commissions and fees from new contracts." However, they analyzed that switching mainly occurs in death insurance with high commissions and fees, driven by sellers.

An industry insider expressed concern, saying, "Agents who fail to secure new customers or markets abuse 승환계약. Incomplete sales due to unfair contracts result in a loss of trust in insurance, ultimately having a negative impact on the industry."

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