Bancassurance sales surge at major Korean banks

(Shinhan Bank)

Sales of bancassurance products have surged at major South Korean banks as demand for high-interest income shifts from equity-linked securities (ELS) to bancassurance.

According to four major Korean banks - KB Kookmin Bank, Shinhan Bank, Hana Bank, and Woori Bank - bancassurance commission revenue for the first three quarters of 2024 totaled 271.1 billion won ($192.6 million), a 40 percent increase from 194 billion won in the same period during the previous year. While overall commission income grew by about 9 percent, bancassurance commissions have shown a dramatic rise.

The recent surge in bancassurance popularity is believed to be due to the ELS products tied to the Hong Kong Hang Seng China Enterprises Index (HSCEI), which triggered substantial losses for Korean financial consumers when the HSCEI plunged by half between 2021 and 2022. This prompted consumers seeking higher returns than traditional bank deposits to turn to bancassurance. Although bancassurance offers lower expected returns than ELS, it provides principal protection on many products, making it a less risky option. Additionally, some savings-type insurance products are protected up to 50 million won per person under Korean depositor protection laws.

KB Kookmin Bank, which was notably affected by the HSCEI-linked ELS crisis, turned in a strong performance in bancassurance sales, posting a 30 billion won increase in commission profits in 2024 compared to the same period during the previous year - the highest increase among the four banks. KB Kookmin Bank led in overall bancassurance commission revenue with 109 billion won, followed by Woori with 73 billion won, Shinhan with 51.8 billion won, and Hana with 37.3 billion won. Shinhan Bank recorded the highest growth rate, with its bancassurance commission revenue up 105 percent year-on-year.

One of the most popular bancassurance products has been high-interest special savings insurance. Designed to pay out more than the total premiums at maturity, it combines savings and insurance benefits but can result in a loss of principal if funds are withdrawn early. This product seems to have gained attention as potential interest rate cuts loom, appealing with the stability of locking in current rates for the long term. The Bank of Korea cut its benchmark interest rate to 3.25 percent in October 2024, a level that is still considered high compared to the 2 percent range it had maintained for the past decade.