Despite Calls to Lift 20-Year-Old 'Banca' Regulations... Insurance Companies Remain 'Skeptical'

Post-COVID Surge in Bancassurance
Overall Premium Income Nears 81%

Despite Calls to Ease 3 Major Sales Regulations
'Will Bank Influence Grow?' Remains Lukewarm

[Asia Economy Reporter Oh Hyung-gil] Bancassurance, the sale of insurance products at bank counters, is rapidly growing as a major sales channel. Although it has been introduced in Korea for over 20 years, it is experiencing another heyday triggered by the COVID-19 pandemic.

There are calls within the financial industry to ease the ‘three major sales regulations’ on bancassurance to sustain its growth, but the insurance sector itself shows a lukewarm attitude. This is due to the subtly divided stances between insurance companies affiliated with financial holding groups that own banks and those that are non-financial holding group insurers.

According to the insurance industry as of the end of August, the cumulative first-year premium income from bancassurance by life insurers reached 4.1593 trillion KRW, accounting for 81.3% of the total premium income (5.1117 trillion KRW).

Looking at the bancassurance premium ratio over the past five years, it surged significantly after the COVID-19 outbreak. The ratio was stable at 71.3% at the end of 2017, 72.4% at the end of 2018, and 74.1% in 2019, but jumped sharply to 80.6% by the end of last year.

Social distancing measures weakened the activities of insurance planners, while low interest rates and a booming stock market increased interest in savings-type insurance and variable insurance, which are major bancassurance products. Additionally, banks introduced insurance as an alternative product amid the private equity fund scandal, contributing to sales growth.

The bancassurance boom continues this year as well. Samsung Life recorded 1.6833 trillion KRW in first-year premium income from bancassurance through August, a 10.4% increase compared to the same period last year.

Fubon Hyundai Life (886.2 billion KRW), NH Nonghyup Life (494.4 billion KRW), and Hanwha Life (493.8 billion KRW) also achieved double-digit growth compared to the same period last year.

When insurance companies sell bancassurance, they pay commissions to banks, and banks’ commission income is also rising sharply. The cumulative commission profits of the five major financial groups?KB, Shinhan, Hana, Woori, and NH Nonghyup?reached a record high of 9.1869 trillion KRW in the third quarter.

[Image source=Yonhap News]

Fueling Calls to Ease Sales Regulations... Do Insurers Gain Real Benefits?

This atmosphere is strengthening calls to ease sales regulations on bancassurance. The bancassurance system, implemented in Korea in 2003, is argued to be outdated and in need of improvement. The Korea Institute of Finance also proposed deregulation in a report titled ‘Review of the Necessity to Maintain the Three Core Bancassurance Regulations’ released on the 30th of last month.

The three major sales regulations?▲product sales restrictions ▲25% sales ratio rule ▲limit of two salespersons per branch?are criticized for hindering competition among insurers and limiting consumer choice.

When bancassurance was introduced, product sales were restricted to prevent incomplete sales. Whole life insurance and automobile insurance still cannot be sold through bancassurance. Only two bancassurance salespersons are allowed per branch. Also, the proportion of products from a specific insurer sold by an individual bank cannot exceed 25%.

Senior Research Fellow Lee Seok-ho of the Korea Institute of Finance said, "Considering the practical benefits, rationale, and digitalization trends, maintaining the three major regulations is significantly less effective," adding, "Unfair sales practices such as incomplete sales or churning can be blocked through the Financial Consumer Protection Act."

However, the insurance industry voices differing opinions on the benefits of deregulation. This is due to the differing perspectives between large insurers outside financial holding groups and those affiliated with financial holding groups. There are concerns that only financial holding group insurers will benefit relatively. Moreover, as bancassurance’s influence grows, banks’ power will strengthen, which may ultimately not be very helpful to insurers.

An industry insider said, "Demands to ease bancassurance regulations have been continuously raised in the past, but insurers have had slightly different positions and have not spoken with one voice," adding, "Although financial holding group insurers are increasing, it is still insufficient to persuade the entire industry."

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