The Financial Supervisory Service (FSS) of South Korea and several other financial authorities are looking to put a stop on the insurance industry’s frenzied competition for sales of short-term whole life insurance policies.
The competition has led to a significant change in the insurance landscape in terms of initial premiums. One of the prevailing rumours has Hanwha Life, which expanded its insurance sales organization this year, surpassing Samsung Life, a player who had held the top spot for decades.
According to a report from Pulse News Korea, the FSS said that it would “prohibit short-term payment whole life insurance from being designed like savings insurance, such as limiting excessive retention bonus payments.” The regulator also raised issues with the practice of some insurers selling life insurance policies as high-interest savings accounts by saying that they offer “111% return after five years.”
In the country, traditional whole life insurance sales have declined due to its lengthy payment requirement of 20 years or more. Meanwhile, short-term whole life insurance, which only requires a payment of five to seven years, has risen significantly. The FSS and the industry noted that the sale of short-term life insurance surged to 41.9% in the first half of last year from 8.4% during the same period of 2019. Sales are also estimated to have exceeded 70% in H1 of 2023.
“The essence of whole life insurance is coverage after death, but there were concerns about incomplete sales and deterioration of soundness by inducing customers to cancel and switch to other products at the end of the payment period,” an FSS official said. “We have taken complementary measures as an increasing number of consumers have complained after signing up under the misconception that it is a high-interest savings plan.”
The FSS plans to encourage changes in the insurance plan design by reducing the refund rate to 100% or less upon completion of premium payments, with long-term bonuses only payable after 10 years or more. The regulator also plans to tighten controls on short-term payment whole life insurance to prevent its sales from increasing until measures to band expediencies are implemented.
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