The persistently high interest rate environment in South Korea has triggered a wave of cancellations for low-yielding savings-type insurance policies. (Image courtesy of Kobiz Media)
SEOUL, Apr. 24 (Korea Bizwire) – The persistently high interest rate environment in South Korea has triggered a wave of cancellations for low-yielding savings-type insurance policies, driving down the two-year policy retention rate at insurers to a mere 65% last year, according to data released on April 23.
The Financial Supervisory Service (FSS), the government’s financial regulator, plans to demand improvement plans from insurers with subpar policy retention rates and strengthen follow-up measures to ensure compliance.
In its report, the FSS revealed that the two-year policy retention rate across insurers plunged to 65.4% in 2022, a significant drop from 69.4% in the previous year. Life insurers were hit particularly hard, with their two-year retention rate plummeting to 60.7%.
Within the life insurance sector, policies sold through bank assurance channels, which account for 62.6% of sales, exhibited the poorest retention rates beyond two years, falling below 50%.
The situation was slightly better for non-life insurers, with a two-year retention rate of 71.6%.
Across the insurance industry, retention rates declined across all durations compared to a year earlier.
An analysis of sales channels revealed that while the one-year retention rates for exclusive agents and independent agencies (GA) were relatively high at 86% and 87.9%, respectively, the rates dropped significantly after the two-year clawback period for commissions.
The FSS acknowledged the deterioration in long-term policy retention rates, a key indicator of sustainable sales practices, and warned that unchecked excessive short-term competition and unsound sales practices within the insurance industry could perpetuate consumer harm. To preemptively address potential risks and prevent incomplete sales, the regulator vowed to intensify its supervision and inspections.
As part of its plan, the FSS will require insurers with poor retention rates to submit improvement plans and strengthen follow-up monitoring. During inspections of insurers, the FSS will conduct joint inspections of sales organizations like GAs and initiate on-site inspections in cases where consumer harm is highly likely, such as improper policy conversions.
The regulator stated it would take a zero-tolerance approach toward any illegal activities by insurance sales forces, holding insurers accountable for internal control failures.
M. H. Lee (mhlee@koreabizwire.com)
