Insurance Cancellations Also Non-Face-to-Face... Deposit Rate Cap of 0.5% Extended for 3 More Years

Maintenance of Kamco's Major Tasks and Legal Grounds

The National Assembly plenary session./Photo by Dongju Yoon doso7@

[Asia Economy Reporter Kwangho Lee] Starting next year, it will be possible to easily cancel insurance contracts through non-face-to-face methods such as phone calls and communication devices. The current maximum limit of the deposit insurance premium rate, which is 0.5%, will be extended for three more years until 2024.

The Financial Services Commission announced on the 24th that the amendment to the "Insurance Business Act," which allows cancellation of insurance contracts through non-face-to-face methods, was passed at the plenary session of the National Assembly. The amendment was primarily proposed by Kim Han-jung, a member of the Democratic Party of Korea, and was approved by the Political Affairs Committee on the 1st and the Legislation and Judiciary Committee on the 22nd before being submitted to the plenary session.

Previously, non-face-to-face cancellation was only possible if the contract holder had chosen this option at the time of signing the insurance contract. If the contract holder had not selected this option in advance, they had to visit the insurance company or agency in person to cancel the contract, which was inconvenient.

With the passage of this amendment, even if the contract holder did not choose non-face-to-face cancellation in advance, they will be able to cancel the contract non-face-to-face later if they wish. However, to prevent unauthorized cancellations by others against the contract holder’s will, identity verification will be required.

The revised Insurance Business Act will take effect six months after its promulgation. After the law is implemented, financial authorities and the insurance industry will review essential explanatory items to protect consumers regarding the allowance of non-face-to-face contract cancellations.

A Financial Services Commission official said, "This reflects the demand of insurance contract holders who prefer non-face-to-face services due to COVID-19, and it is expected to improve convenience for vulnerable groups such as the elderly and disabled who have difficulty moving." According to the Financial Services Commission, the proportion of non-life insurance contracts concluded through communication devices has steadily increased from 12% in 2016 to 15.7% last year.

At the plenary session on the same day, the "Deposit Protection Act Amendment Bill," primarily proposed by Yoon Jae-ok of the People Power Party, and the "Partial Amendment to the Act on the Establishment of Korea Asset Management Corporation (KAMCO)," primarily proposed by Kim Byung-wook of the Democratic Party of Korea, were also passed.

The Deposit Protection Act amendment extends the sunset clause of the current 0.5% maximum deposit insurance premium rate until August 31, 2024, for three years. Originally, the bill proposed a five-year extension until August 31, 2026, but the extension period was reduced to three years during the bill review process. Additionally, a supplementary opinion was added requiring the Financial Services Commission to report the progress on the appropriate deposit insurance premium rate to the relevant standing committee of the National Assembly every six months.

The deposit insurance premium is money accumulated by deposit-taking financial institutions to compensate depositors for losses when the institution cannot repay deposits due to management failure. The deposit insurance fund pays insurance benefits (up to 50 million KRW) on behalf of financial institutions.

Although the upper limit of the deposit insurance premium rate is set at 0.5%, the enforcement decree sets different limits by industry: banks 0.08%, securities firms 0.15%, insurance companies 0.15%, comprehensive financial companies 0.2%, and savings banks 0.4%.

The KAMCO Act mainly aims to revise key tasks and grounds so that KAMCO can actively perform management and development of underutilized national assets, provide opportunities for economic rehabilitation to multiple debtors, small business owners, and marginal small and medium enterprises through debt adjustment and support for business normalization by supplying funds to distressed companies.

The current law focuses on the temporary operation of the bad debt resolution fund to overcome the International Monetary Fund (IMF) crisis and the handling of bad debts to improve the soundness of financial institutions. It was prepared in response to criticism that it does not fully reflect KAMCO’s major practical functions and changes in tasks due to changes in domestic and international economic conditions.

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