Variable Insurance Investment Soars 90% Due to COVID-19... "Risk of Incomplete Sales"

Q1 Variable Insurance Initial Premiums 595.4 Billion

Financial Authorities Still Aware of 'Incomplete Sales Risk'

Quarterly Variable Insurance Initial Premium Trends (Source: Korea Life Insurance Association)

[Asia Economy Reporter Oh Hyung-gil] Since the outbreak of the novel coronavirus disease (COVID-19), liquidity in the market has increased due to low interest rates, and as stocks began to rebound, funds expecting investment returns have been flocking to variable insurance. It is interpreted that investors are turning their attention to this product because it offers the possibility of investment returns along with medical or retirement protection.

According to the insurance industry on the 31st, the first-quarter initial premium for variable insurance surged by 90.4% year-on-year to 595.4 billion KRW. Compared to the previous quarter, the fourth quarter of last year, which was 414.5 billion KRW, it also increased by 180.9 billion KRW (43.6%).

The annual initial premium has also been on the rise since last year. The initial premium for variable insurance was 1.2815 trillion KRW in 2016 and surged by 52.7% to 1.9562 trillion KRW in 2017. It decreased by 8.7% to 1.7859 trillion KRW in 2018 but rebounded again to 1.8162 trillion KRW last year.

Variable insurance is a product that combines insurance and funds, where a portion of the premium paid by the subscriber is invested in funds, and the insurance payout (surrender value) varies depending on the fund’s performance. If the yield rises, a higher insurance payout can be received, but if the yield is poor, the principal loss may occur.

To increase returns, fund management is important, so subscribers must continuously manage the fund, such as changing it according to economic and market conditions even after subscribing to the insurance. Also, if the policy is not maintained for a long period, principal loss may occur. Due to these characteristics, only insurance planners with variable insurance sales qualifications can sell these products.

Not only is selling difficult, but after the contract, sales monitoring to check for incomplete sales must be accurately conducted. The "Insurance Business Supervision Enforcement Rules" require professionals to confirm by phone (happy call) whether the planner clearly explained the variable insurance and whether the policyholder accurately understands it.

In response, the insurance industry has requested to use mobile messengers, emails, and text messages for sales monitoring, but this has been blocked by the financial authorities’ opposition for several years.

Earlier this month, the Financial Supervisory Service rejected the insurance industry’s request to allow electronic happy calls for savings-type insurance (excluding fixed interest rate types) with low new contract volume and low incomplete sales rates. The authorities’ position is that since variable insurance is a product with a high risk of incomplete sales, consumers should exercise caution. Last year, the incomplete sales rate for variable insurance was 0.39%, ranking second after whole life insurance (0.58%).

A financial authority official said, "Since variable insurance has a complex product structure, there is sufficient possibility that it could be sold as a savings product," and added, "We plan to review whether to revise the enforcement rules in consideration of the status of incomplete sales in the future."

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