"Sharp Increase in Variable Savings Insurance Cancellations During Stock Market Boom"

Korea Insurance Research Institute: "Cancellations Due to Short-Term Fluctuations Are Not Desirable"

[Image source=Yonhap News]

[Asia Economy Reporter Oh Hyung-gil] It has been found that the lapse rates of variable savings insurance policies, such as variable annuity insurance and savings-type variable universal insurance, have surged significantly due to the sharp rise in the stock market.

Since variable savings insurance is closer to a long-term protection instrument rather than a short-term investment tool, an increase in lapses is considered undesirable.

According to the Korea Insurance Research Institute on the 4th, since the KOSPI index began to rise significantly in November 2020, the monthly lapse rates of variable savings insurance surged to 1.79% in December 2020 and 2.21% in January 2021.

Between January and November of last year, the monthly lapse rates of variable savings insurance ranged from 0.84% to 1.55%.

The reasons cited for the increase in variable savings insurance lapses include fund transfers for direct stock investments and securing profits.

Researcher Kim Se-jung said, "The monthly redemption scale of domestic equity funds also surged in January this year, and during the same period, customer deposits in the stock market reached a record high of 68 trillion won, suggesting that fund transfers for direct stock investments partially influenced the lapses of savings-type variable insurance. Additionally, the motivation to secure profits after the performance of variable insurance improved could also be a cause of lapses."

The KOSPI index remained around the 2200 level at the beginning of last year but began to surge from November, surpassing the 3000 mark in January this year. Customer deposits for direct stock investments recorded yearly highs of 66 trillion won in December last year and 68 trillion won in January this year.

In August last year, customer deposits also surged from 48 trillion won the previous month to 61 trillion won, leading to increases in both the number of variable savings insurance lapses and the redemption scale of domestic equity funds.

The search trend for "variable insurance lapse" has also changed significantly over the past year. As of the end of 2016, 43.6% of variable insurance subscribers were in their 20s and 30s, while those aged 40 and above accounted for 56.4%, showing a fairly even distribution across age groups.

Furthermore, an analysis of changes in interest regarding variable insurance lapses over the past year through Naver Data Lab, Naver's search volume statistics system, showed that for those in their 20s and 30s, the search volume for variable insurance lapses doubled in December last year and January this year compared to before. For those aged 40 and above, it surged nearly fivefold. It is likely that subscribers aged 40 and above have relatively higher lapse rates.

Researcher Kim said, "An increase in lapses due to short-term fluctuations in the financial market following the spread of COVID-19 may not be desirable. In particular, variable annuities are suitable as long-term retirement income protection products rather than short-term investment tools because they include additional fees for various guarantee options such as minimum death benefit and minimum accumulation guarantee, which can prevent loss of accumulated funds upon death or maturity through these options."

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