Whole life and cancer insurance competition heats up

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South Korean life insurance companies have been heatedly competing in the short-term (10 years or less) payment whole life insurance and cancer insurance space since the beginning of 2024.

According to sources from the insurance industry on Wednesday, Shinhan Life Insurance Co. raised the return rate of its short-term payment whole life insurance product ‘Shinhan MORE Dream Whole Life Insurance’ to 135 percent from 130 percent on Monday. This product offers a structure where if the insurance premium is paid for 7 years and the insurance contract is maintained for more than 10 years before cancellation, 135 percent of the paid premium is returned. If one pays 1 million won ($743.31) per month for 7 years, for example, the total premium paid becomes 84 million won, and if the contract is maintained for another 3 years before cancellation, the return amount will be 113.4 million won, which is 1.35 times the paid premium.

Fubon Hyundai Life Insurance Co. was the only company offering a 10-year return rate exceeding 130 percent until the second half of 2023, but other insurers have been raising their return rates to 130 percent since the end of that year. NongHyup Life Insurance Co.’s ‘Two-Step NH Whole Life Insurance’ saw its 10-year return rate increase to 133 percent in January 2024 from 119.4 percent in October 2023. Kyobo Life Insurance Co.’s ‘Kyobo Practical Whole Life Insurance Plus’ (131 percent) and Fubon Hyundai Life Insurance’s ‘MAX Whole Life Insurance One Pick’ (131.3 percent) also have return rates exceeding 130 percent.

The reason insurance companies are focusing on short-term payment whole life insurance is that the product is a protection-type insurance. Under the new International Financial Reporting Standards (IFRS17), the contractual service margin (CSM), which is the present value of ‘future’ margins expected to arise from new contracts, is important. Unlike savings-type insurance, where insurance money must be returned unconditionally, protection-type insurance is relatively advantageous in terms of profitability as the payment of insurance money varies depending on the situation.

The problem lies in the transfer of risk around 10 years later, when insurance companies must return the surrender values according to the promised rates. “Short-term payment whole life insurance have shown an overheated trend since 2023, and if a large number of customers cancel their insurance after 10 years, the insurance companies could face a sudden increase in the amount of money to be paid, leading to financial risks,” an industry insider said.

In response to these concerns, the Financial Supervisory Service (FSS) limited the refund rate of short-term whole life insurance policies to no more than 100 percent at the 5 and 7-year mark in September 2023. But insurance companies are raising the return rates by adding the ‘maintaining the contract for 10 years’ clause to circumvent the regulation.

The financial authority is also monitoring the market for signs of overheating. “We plan to actively regulate sales practices that only explain the return rates without fully explaining the nature of whole life insurance,” a FSS official said.

Cancer insurance is also seeing signs of overheated competition in the form of ‘limited-time offer’ marketing. The insurance industry expects that cancer insurance premiums will increase by about 10 percent with new premium rates to be applied in April 2024. Insurers are trying to capitalize on the potential increase in cancer insurance premiums by offering products for a limited time.