"With the Exchange Rate Continuing to Fall, Is Dollar Insurance Still a Good Choice?"

Dollar Insurance Gains Attention Amid Low Interest Rates... Increase in Subscriber Inquiries
Insurance Premiums and Benefits in KRW Vary with Exchange Rates
Financial Authorities Issue Consumer Alert Over Incomplete Sales Concerns

[Image source=Yonhap News]

[Asia Economy Reporter Oh Hyung-gil] As the won-dollar exchange rate has recently plummeted, inquiries from customers who have purchased dollar insurance expressing concerns about losses have surged. There are growing concerns that disputes may arise from incomplete sales of dollar insurance, as there have been many cases of financial product investment losses this year.

With increasing interest in securing dollar assets, the dollar insurance market has recently grown rapidly, but the perception of these financial products as tools for 'exchange rate tech' has not improved.

According to the Financial Supervisory Service and the insurance industry on the 9th, the scale of dollar insurance subscriptions in the first half of this year is expected to exceed last year's sales performance (969 billion KRW), reaching 757.5 billion KRW.

Currently, about ten insurance companies are selling dollar insurance. The market, which was dominated by foreign insurance companies, has become more competitive since last month with domestic companies such as Samsung Life Insurance joining the fray.

In fact, the number of dollar insurance subscriptions (new contracts) surged from only 3,181 cases in 2015 to 63,000 cases last year alone. Dollar insurance is a product where all contract terms, including premiums, insurance benefits, and surrender values, are denominated in dollars. Since the monthly premiums converted into dollars are paid in won, the premium amount varies depending on exchange rate fluctuations.

As the number of dollar insurance subscribers has greatly increased, inquiries about losses due to the recent sharp decline in the exchange rate have flooded insurers.

A representative from Life Insurance Company A said, "There has been a noticeable increase in customers asking why the premiums have changed and whether the exchange rate drop causes principal losses," adding, "Many customers also want forecasts on when the exchange rate will rise as it has recently fallen."

Currently, the won-dollar exchange rate has not fallen to the level before the COVID-19 pandemic. The exchange rate, which soared to the 1,280 KRW range in March, marking the highest point of the year, dropped to the 1,085 KRW range on the 8th of this month. Although dollar insurance is based on the dollar, considered a representative safe asset, it is directly affected by exchange rate fluctuations due to the won-conversion premium and payment riders.

For example, for a single premium dollar insurance policy with a minimum premium of 10,000 dollars, about 12.8 million KRW had to be paid in March, but as of the 4th of this month, the premium was 10.8 million KRW, showing differences depending on the timing.

In the case of monthly premiums, the premium changes each time according to exchange rate fluctuations, with premiums decreasing when the exchange rate falls. Conversely, if the exchange rate rises, additional premiums may be required.

Especially at maturity, exchange gains or losses may occur depending on the exchange rate. If the exchange rate continues to fall as it is now, exchange losses are also a concern. Accordingly, the financial authorities issued a consumer warning last October, stating that foreign currency insurance is not a means of 'exchange rate tech.'

The financial authorities plan to impose strict sanctions on insurance companies suspected or found to have committed illegal acts during the sale of foreign currency insurance through on-site inspections.

An insurance industry official said, "Dollar insurance is based on the dollar but is clearly an insurance product," adding, "Unlike savings, it is a long-term product, so short-term exchange rate fluctuations have less impact. It is better to consider subscribing based on asset allocation management or the use of dollars rather than expecting exchange gains from exchange rate fluctuations in the long term."

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