Insurance Research Institute: "Insurance Planners Should Also Be Authorized to Recommend Dementia Trusts"

Despite Surging Demand, Only High-Net-Worth Individuals Benefit
Need to Grant Dementia Trust Recommendation Authority to Insurance Planners, Not Just Investment Solicitation Agents
Expand Trust Scope from Death Benefits to Include Survival and Dementia Insurance Benefits

The Korea Insurance Research Institute has recommended that regulations be significantly eased to further advance dementia trusts by integrating them with long-term care services. Although demand for dementia trusts is rapidly increasing, they are currently classified as financial investment products under existing law, effectively making them the exclusive domain of high-net-worth individuals who visit bank branches. The Korea Insurance Research Institute emphasized that not only investment solicitation agents but also insurance planners (FCs) should be granted the authority to recommend dementia trusts to clients.

Customized care for elderly dementia patients. The Asia Business Daily DB

On March 8, the Korea Insurance Research Institute released a report titled "Measures to Expand the Role of the Insurance Industry in Dementia Management" containing these findings.

According to the 2023 Dementia Epidemiological Survey conducted under the supervision of the Ministry of Health and Welfare, the number of dementia patients aged 60 or older in South Korea is expected to double from 911,760 in 2023 to nearly twice that number by 2040. The prevalence rate of dementia among the population aged 60 and older is projected to rise from 6.89% in 2023 to 11.21% by 2070. As the number of dementia patients increases, the volume of so-called "dementia money" that is not properly managed is also bound to grow. The survey estimates that the assets of dementia patients in 2023 amounted to 154 trillion won, or 6.4% of GDP, and will surge to 488 trillion won, or 15.6% of the expected GDP, by 2050.

The Korea Insurance Research Institute pointed out that although there is a public system for managing the assets of dementia patients—the adult guardianship system—its utilization is low due to its judicial oversight and complex procedures. It takes more than six months from applying for guardianship to appointment, and every time daily expenses are executed, approval from the court is required, making the system difficult to use.

The Korea Insurance Research Institute argued that activating dementia trusts would enable effective management of dementia patients’ assets and highlight the role of insurance companies in this process. A dementia trust is a contract in which, upon a diagnosis of dementia, the trustee manages and uses the trust property according to a method pre-determined by the trustor.

Currently, the domestic trust market is centered on banks. Banks affiliated with financial holding companies that own insurance subsidiaries (five life insurers and two non-life insurers) mainly run trust businesses.

The Korea Insurance Research Institute asserted that, in order to provide broader long-term care services beyond asset management, it is necessary to ease regulations on insurance companies' dementia trust business. This is because, among financial companies, only insurance companies are permitted to conduct long-term care services as ancillary or subsidiary businesses.

The Korea Insurance Research Institute proposed four regulatory improvement measures: ▲ classifying dementia trusts as management-type trusts rather than financial investment products; ▲ granting insurance planners the authority to recommend dementia trusts, in addition to investment solicitation agents; ▲ expanding the scope of insurable claims that can be placed in trust from the current general death benefits to include survival and dementia insurance benefits; ▲ allowing the supply of elderly care facilities through land and building leases.

Under the current Capital Markets Act, dementia trusts are classified as financial investment products. The law regards dementia trusts as investment products because cash may be included in the trust property. However, the Korea Insurance Research Institute emphasized that, since asset management is carried out according to the method pre-determined by the trustor after a dementia diagnosis, dementia trusts should be interpreted as products focused on providing related services rather than investment.

By regulation, only investment solicitation agents are authorized to recommend investment products. The insurance industry views this as a barrier to the popularization of dementia trusts. Kim Gyudong, the author of the report and a research fellow at the Korea Insurance Research Institute, pointed out, "In reality, most dementia trusts are being offered at bank branches to high-net-worth individuals."

It was also noted that the current scope of insurable claims that can be placed in trust is overly narrow, making it difficult to secure funds. The insurance payout from protection-type policies such as dementia insurance is meant to cover care costs following a dementia diagnosis. However, under current law, only general death benefits are recognized as trust property. The Korea Insurance Research Institute therefore suggested expanding this scope to include survival and dementia insurance benefits.

The expansion of elderly care facilities is also an urgent issue. Current elderly welfare law requires operators of elderly care facilities to own both the land and the buildings. As the law prohibits supplying such facilities through land and building leases, there is concern that facility supply will be unable to keep pace with the rising demand due to the increasing dementia population.

Kim, the research fellow, stated, "Although insurance companies are in a unique position to both operate trusts and provide long-term care services, regulatory restrictions are limiting the activation of dementia trusts linked to care services. There is a need to systematically manage the dementia population by easing regulations to improve access to dementia trusts, expand the scope of insurable claims that can be placed in trust, and allow the supply of elderly care facilities through leasing."

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