Low Interest Rates and COVID-19 Surpassed by Bancassurance... Will Fee Regulations Block It? (Comprehensive)

Bancassurance Premiums Up 34.6% Year-on-Year
Expecting to Surpass 5 Trillion Won in Premiums for the First Time in 4 Years
Continuous Fee Regulation Tightening... Likely to Act as a Variable

[Image source=Yonhap News]

[Asia Economy Reporter Oh Hyung-gil] Song Myeong-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 employee.

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, you are guaranteed 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 through 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 installment 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 insurance premiums from bancassurance subscriptions 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 insurance premiums 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 insurance premiums from subscriptions through agents during the same period amounted to only 600 billion won, down 6.2% from 640 billion won in the same period 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, bancassurance insurance premiums are expected to exceed 5 trillion won for the first time in four years.

Bancassurance insurance premiums 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 rapid growth to continue for the time being. The main reason is the low interest rate environment. Following two interest rate cuts in the first half of the year, the prolonged 'zero interest rate' era has made single-premium savings insurance popular as an investment product for financial planning.

Another favorable factor for bancassurance is that banks have become reluctant to sell high-risk products such as derivative-linked funds (DLF) and Lime funds, which caused large-scale redemption suspensions. 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% rule' for bancassurance on 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, the suspension of advance payment of bancassurance sales commissions in July and the upcoming regulation from next year to pay commissions for single-premium savings insurance in installments pose variables.

Until now, life insurers have operated by paying commissions on advance premiums for bancassurance in a lump sum, but financial authorities have intervened due to concerns about incomplete sales.

When customers pay the insurance premium for 12 months at once, the corresponding one-year commission is provided to the bank without installment, and life insurers have used this to boost performance in savings insurance.

An insurance industry official said, "If sales commissions are paid in installments, the promotional incentive for banks 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.