"When They Said to Create It" Insurers' 'Dissatisfaction' with Authorities Reversing Non-Cancellable, Non-Return Insurance After 5 Years

Financial Authorities Encouraged Development of No-Refund and Low-Surrender Products, Now Instruct to Lower Refund Rates
Financial Authorities Issue Alerts Amid Sales Surge and Propose Design Restrictions
Discontinued Product Marketing Emerges... "An Admission of Policy Failure by Authorities"

[Asia Economy Reporter Oh Hyung-gil] "Just five years ago, we were advised to create products, and now we're told not to sell them. I don't know which tune to follow. The fact that products sell well means consumers have chosen them, so I don't understand why the authorities emphasizing consumer protection do not respect consumer choice."

Insurance companies are unable to hide their frustration over news that no-refund and low-refund insurance products are effectively being phased out of the market.

No-refund and low-refund insurance, which had been chosen by consumers lacking extra funds to purchase insurance amid the economic downturn, had become a 'hit product' that revitalized the struggling insurance industry. However, with financial authorities issuing consumer warnings and imposing restrictions on product sales, it is expected that insurance companies' revenues will also be impacted.

According to financial authorities and the insurance industry on the 26th, the task force (TF) composed of the Financial Supervisory Service and insurance industry officials, which was launched at the end of last year to improve the structure of no-refund and low-refund products, is expected to soon release improvement plans that limit product design elements such as refund rates.

Accordingly, the industry has already started 'sold-out marketing,' saying, "No-refund and low-refund insurance sales will be suspended in August. Now is the chance to subscribe."

The biggest feature of no-refund and low-refund insurance is that it offers the same coverage as general insurance but at a lower premium.

However, if the policyholder cancels the insurance before maturity, the refund amount is small or none. Instead of paying a large refund to the policyholder who cancels, the funds are used as resources to pay benefits to policyholders who maintain their contracts. Those who maintain their insurance until the end can pay lower premiums.

In 2015, Orange Life (then ING Life) introduced the low-refund whole life insurance product, marking its first appearance in Korea.

At that time, the Financial Services Commission revised insurance supervision regulations to allow no-refund and low-refund products, which had been permitted only for pure protection products with a payment period of 20 years or less, to be applied to all pure protection products, anticipating premium increases due to low interest rates.

Word spread that you could pay less premium and receive the same refund as general insurance at maturity, and the number of new no-refund and low-refund insurance contracts surged from about 850,000 in 2017 to about 1.76 million in 2018. The financial authorities' encouragement of product launches led to market expansion.

However, the stance of financial authorities changed abruptly from last year. The Financial Supervisory Service strengthened product guidance in August last year, requiring customers to personally write that "the surrender refund may be none or small" due to the rapid increase in no-refund and low-refund insurance sales. Two months later, in October, a consumer warning was issued.

Although it was justified by the expectation of consumer damage, criticism poured in that the 'barn door' was being closed five years after the products were sold. Some joked that NH Nonghyup Life, which was about to launch no-refund and low-refund insurance at the time, might have tipped off the Financial Supervisory Service.

The insurance industry argues that there is no problem with the no-refund and low-refund insurance products themselves. An industry official pointed out, "For insurance products that require maintaining contracts for decades, the authorities reversing their stance like turning over their hand after five years can only be seen as admitting policy failure."

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