Why Life Insurance Companies' 'Deposit Insurance Fees' Have Dropped by Half

Life Insurer Collected 91.4 Billion KRW... 60% Decrease from Previous Year
Received Reduction After Exceeding Reserve Target
Closely Monitoring Expansion of Deposit Protection Scope

[Image source=Yonhap News]

[Asia Economy Reporter Oh Hyung-gil] Jung Hee-soo, chairman of the Life Insurance Association, cited the reduction of deposit insurance premiums as one of the management achievements last year during a non-face-to-face meeting earlier this year. In fact, the deposit insurance premiums paid by life insurance companies last year decreased to about half of the previous year’s amount. For the first time ever, the premiums were lower than those of non-life insurance companies. What made the long-standing demand of the insurance industry for lowering deposit insurance premiums a reality?

According to the insurance industry on the 18th, the Korea Deposit Insurance Corporation collected 91.4 billion won in deposit insurance premiums from life insurance companies last year. This is about a 60% decrease compared to 210.9 billion won the previous year. Meanwhile, during the same period, non-life insurance companies’ premiums increased by 6.3 billion won to 109.3 billion won. This is the first time life insurance companies paid less deposit insurance premiums than non-life insurance companies.

The deposit insurance premium paid by insurance companies is calculated by multiplying 0.15% by the average amount of the reserve liabilities set aside to pay insurance claims to policyholders later and the insurance premiums collected during the year. Since reserve liabilities continue to increase even if new subscriptions do not increase, the deposit insurance premiums inevitably tend to increase over time.

However, the reason life insurance companies’ deposit insurance premiums decreased is that they received a reduction after exceeding the reserve target. The deposit insurance fund reduces premiums when the fund’s reserve level reaches the target size. The reserve ratio of life insurance companies in 2019 was 0.849%, exceeding the lower limit of the target size (0.660%). Accordingly, they received a 64% reduction in premiums last year.

On the other hand, the reserve ratio of non-life insurance companies was 0.738%, below the target size (0.825%), so they did not receive any reduction. Life insurance companies also received a 70% reduction last year, so the deposit insurance premiums they pay this year are expected to remain around 90 billion won.

The insurance industry has so far accumulated more than 5 trillion won in the deposit insurance fund, bearing 22.4% of the total fund revenue of 25.3819 trillion won. Life insurance companies contributed 4.2957 trillion won, and non-life insurance companies 1.4109 trillion won. However, insurance companies have demanded revisions, arguing that they pay huge deposit insurance premiums despite rarely using the deposit guarantee function.

In particular, they pointed out that it is unreasonable for deposit insurance premiums to automatically increase in line with the high reserve liabilities required by financial authorities for crisis response. Accordingly, the Enforcement Decree of the Depositor Protection Act was amended in 2020 to exclude insurance policy loans from the deposit insurance premium calculation base.

However, recently, as the Korea Deposit Insurance Corporation announced plans to improve premium rates and target fund levels while promoting the expansion of deposit protection coverage, the insurance industry is closely watching the possibility of premium increases. The Korea Development Institute (KDI) also argued that since the deposit insurance fund guarantees surrender values rather than insurance claims in case of insurer bankruptcy, the protection target should be changed to insurance claims and the protection limit raised.

An insurance industry official said, "As opinions to expand the scope of depositor protection emerge, discussions on deposit insurance premium increases may follow," adding, "It is necessary to consider that through the contract transfer system, insurance consumers can be equally protected without contract termination or loss."

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