Financial Authorities Introduce 'Prior Notification System' for Long-Term Foreign Currency Insurance Products

Number of Foreign Currency Insurance Subscribers Increases 11.4 Times in 4 Years

[Asia Economy Reporter Kwangho Lee] Financial authorities are introducing a prior notification system for long-term foreign currency insurance products. Although foreign currency insurance is gaining popularity as a financial investment tool, there is a concern that losses may occur, such as not being able to recover the principal due to exchange rate fluctuations.

According to data submitted by the Financial Supervisory Service to Kim Byung-wook, a member of the Democratic Party of Korea, the number of foreign currency insurance subscribers increased 11.4 times over four years, from 14,475 in 2017 to 165,746 in 2020. In 2018, 42,744 people subscribed, and in 2019, 52,318 people subscribed, showing an average annual growth rate of 146%.

The surge in foreign currency insurance subscribers is due to the higher interest rates and the potential for exchange gains compared to opening foreign exchange deposit accounts at commercial banks.

The interest rate for recently sold savings-type dollar insurance is around 2-3% per year, while the interest rate for dollar deposits is only about 0.1-0.2%. Additionally, if the exchange rate rises when receiving insurance payouts due to an accident, the amount can increase.

The number of complaints related to foreign currency insurance received by the Financial Supervisory Service increased from 2 cases in 2018, 2 cases in 2019, to 15 cases last year. All 19 cases were related to insufficient product explanations and lack of explanation about the product or terms and conditions.

Representative Kim said, "Foreign currency insurance is not a financial investment tool like exchange rate trading," and added, "Financial consumers should be cautious about the complex product structures, and financial authorities should closely monitor the market situation."

Accordingly, financial authorities plan to introduce a prior notification system for foreign currency insurance products and apply suitability principles from the sales stage. For long-term foreign currency insurance products with durations of 3 to 5 years or more, sales will only be possible after prior notification and approval by the Financial Supervisory Service.

A Financial Services Commission official said, "It is already difficult to predict exchange rate volatility, and for long-term foreign currency insurance products lasting 10 to 20 years, the volatility of maturity insurance payouts can be even greater."

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