[Column] Financial Authorities' Crackdown on Dollar Insurance Shocked by 'KIKO'

[Asia Economy Reporter Oh Hyung-gil] Due to the continued weakness of the dollar amid the COVID-19 aftermath, foreign currency insurance, commonly known as dollar insurance, has reached a crossroads regarding its survival. Although financial authorities have begun institutional improvements for dollar insurance, there are even complaints that this is just an attempt to pressure insurance companies.

Dollar insurance is a type of whole life or pension insurance. Premiums and benefits are paid and received in dollars. The premiums fluctuate with exchange rate changes, and additional gains or losses may occur depending on the exchange rate even after maturity refunds. It has gained popularity as a way to prepare funds for immigration, children's study abroad, or travel, leading to a rapid increase in subscribers over the past few years.

Startled by the sharp rise in subscribers, financial authorities issued a consumer advisory, citing risks from exchange rate fluctuations and concerns about incomplete sales. They also demanded that insurance companies bear the cost of hedging against volatility risks. Insurance companies found themselves in turmoil. The number of subscribers inquiring about cancellations due to anxiety also surged significantly.

The possibility of principal loss due to exchange rate fluctuations applies to all dollar-based financial products. Dollar deposits and dollar ETFs carry the same risks. However, regulations have been applied only to dollar insurance. In the market, there are even remarks that the authorities, chastened by the 'KIKO (Knock-In Knock-Out) incident,' preemptively cracked down.

In particular, insurance companies strongly oppose the demand to secure costs for exchange rate hedge guarantees. Since insurance benefits are received in dollars and the decision on whether or when to exchange currency is left to the subscriber's discretion, it is impossible for insurance companies to fully guarantee exchange losses.

If insurance companies bear the hedging costs, business expenses will inevitably increase, leading to premium hikes and ultimately increasing the burden on consumers. This is tantamount to telling companies not to sell dollar insurance.

The authorities' claim that dollar insurance is sold like an investment product is also contradictory. Even though sales regulations are thoroughly followed?such as explaining the possibility of principal loss at the subscription stage or requiring direct signatures on related clauses?if there is still room for incomplete sales, the proper solution is to strengthen the current sales procedures.

The popularity of dollar insurance reflects growing consumer interest in exchange rate-based financial strategies. It is unreasonable to keep restricting active consumers with outdated regulations indefinitely.

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