[1mm Financial Talk] Insurance Companies Struggling to Develop 'Win-Win Solutions'

Complex Insurance Products... Struggling to Find a 'Win-Win' Solution

Following pressure from financial authorities, insurance companies are set to propose win-win measures after banks and card companies. It is said that there were ongoing concerns due to the limited number of products for small business owners and the complexity of the products themselves.

According to financial authorities and the industry on the 7th, Lee Bok-hyun, Governor of the Financial Supervisory Service (FSS), is scheduled to visit Hanwha Life Insurance headquarters in Yeongdeungpo-gu, Seoul next week. On that day, Hanwha Life Insurance, Hanwha General Insurance, and other Hanwha Group insurance affiliates are expected to present their win-win financial plans. It is known that the detailed finalization of the win-win plan is currently underway. A Hanwha Life Insurance official explained, "We have not yet decided on the specific scale and direction."

The 'win-win pressure' from authorities appears to be extending from banks and card companies to insurance companies. Previously, on the 29th of last month, Lee Bok-hyun, Governor of the FSS, attended a sponsorship fund delivery ceremony and a small business owners' meeting for vulnerable groups at the Good Neighbors Hall in Yeongdeungpo-gu, Seoul, along with Lim Jong-ryong, Chairman of Woori Financial Group, and Park Wan-sik, President of Woori Card. On that day, Woori Card announced a 220 billion KRW scale win-win financial plan for small card merchants and vulnerable groups. Governor Lee said, "I hope that win-win efforts like those of Woori Card will expand throughout the financial sector," adding, "It is important for financial companies to practice sustainable win-win finance by developing specialized financial products to support vulnerable groups. I urge banks, insurance companies, as well as card companies and financial investment (securities) firms, to strive to develop various win-win financial products." In February and March, Governor Lee also visited the four major commercial banks?KB Kookmin, Shinhan, Woori, and Hana Banks?in succession, and the banks poured out 800 billion KRW worth of financial support, including loan interest rate reductions.

As a result, it was naturally expected that insurance companies would be next, which put them in a dilemma. Unlike bank savings/deposits or loans where interest rate adjustments are possible, or card companies’ card loans, insurance products themselves are complex, making it difficult to offer uniform discounts or benefits. Some other insurance companies had already submitted win-win plans to the FSS before Hanwha Life Insurance, but they were not adopted due to concerns about effectiveness. An industry insider confessed, "Unlike products such as small business loans with interest rate reductions or interest deferrals that have a certain scale and visible effects, insurance products vary too much by customer in terms of subscription, coverage nature, and maturity."

NH Nonghyup Life Insurance and Tongyang Life Insurance recently decided independently to lower the maximum interest rates on insurance policy loans (loans taken by policyholders up to the surrender value limit), but this method is also not easy. According to insurance law, equal benefits must be given to all policyholders, so providing interest rate reductions only to some borrowers, even if they have the same insurance, could be problematic. Moreover, the actual beneficiaries are limited, making it difficult to consider this as an industry-wide 'win-win finance' initiative.

It was also difficult to uniformly reduce insurance premiums. Since the characteristics differ by product type, such as savings or protection, calculating an equal discount rate is challenging. Even if premium deferrals for small business owners’ wind and flood insurance were applied, the annual premium is only in the low 30,000 KRW range, so there were criticisms that the effectiveness would be limited. This is why attention is focused on Hanwha Life Insurance’s win-win plan. The authorities emphasize that this is also a 'win-win' rather than pressure. An FSS official explained, "When Governor Lee Bok-hyun visits, the promotional effect for individual financial companies is significant, so it can be a 'win-win' for both sides."

(Source=Getty Images Bank)

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