Low Interest Rates and COVID-19 Surpassed by 'Banca'... Will Fee Regulations Block It?

Bancassurance Premiums Up 34.6% Year-on-Year
Expecting Premiums to Surpass 5 Trillion Won for the First Time in 4 Years
Repeated Commission Regulations Likely to Act as a Variable

[Asia Economy Reporter Oh Hyung-gil] Song Myung-hee (46, pseudonym), who visited a bank to deposit 200 million won in jeonse (key money deposit), invested the entire amount in a variable savings insurance recommended by a bank clerk.

It was a product that invested in a fund where a private banker (PB) automatically adjusts the asset allocation according to market conditions, so direct investment was not necessary. They also said that if you deposit a lump sum, it guarantees an annual compound interest rate of 2%, which is better than a savings account.

Song said, "With low interest rates and declining guaranteed rates, it is not easy to choose a suitable product," adding, "Although the principal is not guaranteed, I decided because the yield looked good."

Bancassurance (insurance sold at banks), which had fallen into disfavor in the insurance industry, has made a spectacular comeback.

With face-to-face sales shrinking due to the COVID-19 pandemic, bancassurance centered on savings-type insurance has played a relatively key role in driving sales. However, with the commission payment system set to be implemented next year, it is uncertain whether this favorable trend will continue long-term.

According to the Life Insurance Association on the 12th, the total premium income from bancassurance from January to August this year reached 4.24 trillion won, a sharp increase of 34.6% compared to the same period last year. This accounts for well over 80% of the total premium income of 5.23 trillion won.

Samsung Life Insurance recorded the highest amount among life insurers with 1.52 trillion won. Fubon Hyundai Life Insurance followed with 480 billion won, NH Nonghyup Life Insurance with 440 billion won, and ABL Life Insurance with 416.5 billion won.

On the other hand, the total premium income from policies purchased through agents during the same period was only 600 billion won, down 6.2% from 640 billion won in the same month last year. Bancassurance has more than compensated for the absence of agents.

If this upward trend in bancassurance sales continues until the end of the year, premium income from bancassurance is expected to exceed 5 trillion won for the first time in four years.

Bancassurance premium income recorded 8.37 trillion won in 2016, then declined to 5.21 trillion won in 2017 and 3.96 trillion won in 2018, before slightly recovering to 4.34 trillion won last year.

The insurance industry expects bancassurance's strong performance to continue for the time being. The biggest reason is the low interest rate environment. Following two rate cuts in the first half of the year, the prolonged era of 'zero interest rates' has made lump-sum savings-type insurance popular as an investment product for financial planning.

Reluctance to sell high-risk products at bank branches, due to large-scale redemption suspensions of derivative-linked funds (DLF) and Lime funds, is also a positive factor for bancassurance. In particular, bancassurance sales by financial holding company-affiliated insurers such as Shinhan Life, Orange Life, KB Life, and Prudential Life are expected to expand.

The Financial Supervisory Service recently issued a legal interpretation exempting the '25% bancassurance rule' for insurers with the same largest shareholder. Currently, the total recruitment amount of a specific insurer at branches cannot exceed 25% of new recruitment, but for two insurers with the same largest shareholder, the combined total only needs to comply with 33%. This allows concentration of sales to one affiliate.

However, following the suspension of advance payment of bancassurance sales commissions in July, the strengthening of bancassurance regulations to pay commissions for lump-sum savings insurance in installments starting next year is a variable.

An insurance industry official said, "If sales commissions are paid in installments, the incentive for banks to promote sales will inevitably decrease," adding, "We need to monitor sales until the end of the year and revise sales strategies for next year."

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