[1mm Financial Talk] Exchange Rates Soar... Reasons for the Slowdown in Dollar Insurance Sales

[Asia Economy Reporter Changhwan Lee] Recently, as the KRW-USD exchange rate has risen sharply, interest in dollar insurance in the insurance market has also increased. However, since financial authorities have stepped up regulations on the sale of dollar insurance due to concerns about incomplete sales, the related market is rather shrinking.

According to the insurance industry on the 21st, recent sharp increases in the KRW-USD exchange rate have heightened consumers' interest in dollar insurance. Dollar insurance refers to products that provide risk coverage similar to general insurance but pay and receive premiums entirely in US dollars. If one subscribes when the dollar value is low and receives insurance benefits when the value is high, they can gain exchange rate profits accordingly.

It receives more attention in times like these when the dollar value is continuously rising. In fact, foreign insurance companies that hold many dollar insurance products have seen an increase in product sales over the past few months.

AIA Life announced that its "(Non-dividend) Golden Time Annuity Insurance II," which is subscribed to in dollars, was sold about 1,000 times in April and May, with subscription premiums approaching 100 billion KRW. This figure represents more than a 15-fold increase compared to the premiums subscribed during the same period last year.

Besides AIA Life, it is known that dollar insurance sales are also increasing at companies such as MetLife Life and Prudential Life. AIA Life officials explained, "As the Ukraine war prolongs and uncertainties surrounding China risks grow, demand for foreign currency products has significantly increased."

However, warnings have been issued that caution is necessary because dollar insurance carries risks due to volatility in the foreign exchange market. If the dollar value falls, the amount of insurance benefits received can be significantly less than expected.

Most dollar insurance products are ultra-long-term products with subscription periods of over 10 years, making it virtually impossible to predict the exchange rate 20 to 30 years later when the insurance benefits are paid. This means subscribing to dollar insurance aiming for immediate exchange gains is meaningless.

Financial authorities have also started to notify the risks of dollar insurance and impose sales regulations. From next month, subscription procedures will be strengthened so that only actual users, not investors, can subscribe to foreign currency insurance including dollar insurance.

Foreign currency insurance will basically be available only to actual users of foreign currency, such as those planning to move abroad or study overseas. Agents must fully explain the volatility risks of foreign currency insurance to customers and notify them of the risk of financial loss before they can sell these products. Due to strengthened regulations, some insurance companies have even withdrawn their foreign currency insurance products entirely.

An insurance industry official said, "Dollar insurance sales have not been actively conducted even during this strong dollar period because the authorities have significantly tightened regulations from this year to prevent incomplete sales."

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