Insurers receive an FSS warning
Even though insurers are poised to increase premiums by as much as 10 percent next month, agents are busy soliciting people to buy policies before the Financial Supervisory Service (FSS) cuts the standard rate of interest by a quarter of a percentage point, also expected in April.
The standard rate of interest would go down from the current 3.75 percent to 3.5 percent and represents the yield on insurers’ mandatory reserve deposits. The financial watchdog established the rate to curb excess competition and help maintain insurers’ fiscal soundness. The FSS renews the standard rate of interest every April after considering market rates and the yield on 10-year Treasuries.
The yield of 10-year Treasuries fell to 2.94 percent in February from 3.82 percent in February 2012 and 4.67 percent in February 2011.
A 31-year-old worker surnamed Lee hurriedly bought an insurance policy after a sales agent told him his premium would be 10 percent to 20 percent more for the same coverage if he waited until next month.
“I had a feeling the agent was exaggerating a little bit, but I eventually signed a contract because I felt it’s good for me to get insurance early given that I will have to get it anyway in the future,” said Lee.
Observers said agents are pushing consumers because when the FSS cuts the standard rate of interest, it will boost the amount of the mandatory reserve deposit which will cause insurers to increase premiums.
“We’re expecting the rate cut in April,” said an industry source. “And fresh insurance policies signed from April will be affected by the new standard rate of interest. Existing insurance policies would not be affected by an insurance premium hike.”
Big life insurance companies - including Samsung Life Insurance, Kyobo Life Insurance and Hanwha Life Insurance - and nonlife firms - including Samsung Fire and Marine Insurance, Hyundai Marine and Fire Insurance, and Dongbu Insurance - are in the process of adjusting insurance premiums.
If the standard rate of interest goes down by 0.25 percentage point, market observers estimate premiums will rise between 5 percent and 10 percent for lifetime policies and 2 percent to 3 percent for short- and mid-term policies.
Meanwhile, the FSS said yesterday it will take stern measures against insurers if they continue to pressure consumers.
The financial watchdog has acknowledged that insurers will face pressure to raise premiums, for example between 3 percent and 5 percent for a 20-year policy if the standard rate of interest is cut by 0.25 percentage point. But it said the rate change won’t affect savings-linked and annuity insurance.
The FSS said coverage insurance policies represent 32.5 percent of the overall income from life insurance policies. “The FSS has asked insurers to finalize the level of insurance premium hikes as soon as possible and it will then examine whether they are appropriate,” said Kim Soo-bong, deputy FSS governor. “They cannot raise insurance fees if they fail to provide clear reasons to us why the hike is inevitable.”
By Kim Mi-ju, Kim Chang-gyu [firstname.lastname@example.org]