Dollar Insurance with Reduced Payouts When Exchange Rates Fall Sees 11-Fold Increase in Subscribers Over 4 Years

Assemblyman Kim Byung-wook: Number of Foreign Currency Insurance Subscribers Soars 1045% in 4 Years
Financial Authorities Need to Prevent Perception as a Wealth Management Tool

[Asia Economy Reporter Oh Hyung-gil] The number of foreign currency insurance policyholders, whose premiums and benefits vary according to exchange rate and interest rate fluctuations, has increased more than 11 times in four years.

Foreign currency insurance, designed so that premiums increase when exchange rates rise and benefits decrease when exchange rates fall, has a fixed benefit payment timing, meaning the surrender value may be less than the principal upon cancellation, requiring consumer caution.

According to the ‘Number of Foreign Currency Insurance Policyholders and Changes by Insurance Company’ submitted by the Financial Supervisory Service to Kim Byung-wook, a member of the National Assembly’s Political Affairs Committee from the Democratic Party of Korea, the number of foreign currency insurance policyholders increased by 1,045% over four years. It surged about 11 times from 14,475 in 2017 to 165,746 last year.

Foreign currency insurance has the same product structure as won-denominated insurance but involves premium payments, benefit payments, and surrender values all conducted in foreign currencies.

The number of foreign currency insurance policyholders has increased by an average of 146% annually over the past three years. It surged 297% in 2018 compared to the previous year, increased by 91.4% in 2019, and grew 51.3% last year compared to the previous year.

Since last year, more non-life and life insurance companies have started designing and selling new foreign currency insurance products. In particular, foreign currency insurance is gaining subscribers as it is known for “allocating assets in the global key currency, the dollar, to diversify risk, and offering tax-exempt interest income benefits if maintained for more than 10 years.”

Vulnerable to Exchange Rate Risk... Benefits Decrease When Exchange Rates Fall

The problem is that foreign currency insurance products are not financial investment tools. Last year, the Financial Supervisory Service and the Financial Services Commission issued a ‘Foreign Currency Insurance Consumer Advisory’ pointing out the possibility of incomplete sales of foreign currency insurance by non-life and life insurers. The Financial Supervisory Service stated that caution is necessary as damages from exchange rate and interest rate fluctuations can be passed on to consumers. In fact, foreign currency insurance causes losses when exchange rates rise at the time of premium payment because the premium burden increases. Conversely, when exchange rates fall at the time of benefit receipt, the won value of the benefits decreases, reducing the benefit amount.

Especially, interest rate-linked products, which pay rates depending on overseas bond yields, also bear interest rate risk. Complaints are also increasing significantly. The number of foreign currency insurance complaints received by the Financial Supervisory Service over the past three years rose sharply from 2 cases in 2018 and 2 cases in 2019 to 15 cases last year. All 19 cases were reported due to insufficient product explanation or failure to explain the product or terms during the insurance solicitation process.

Assemblyman Kim Byung-wook said, “Foreign currency insurance is not a financial investment tool such as exchange rate trading, so financial consumers should pay attention to the relatively complex product structure compared to won-denominated products,” and added, “The financial authorities, which issued the ‘Foreign Currency Insurance Consumer Advisory’ last year, should closely monitor the market situation to prevent damages related to foreign currency insurance products.”

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