Life insurance firms under fire for underpaying claims

Some life insurance companies are under investigation by the Financial Supervisory Service for allegedly underpaying benefits on pension plans they sold in the mid 1990s, according to a report.

Money Today reported Tuesday that major life insurance companies such as Samsung Life Insurance and Kyobo Life Insurance are suspected of paying out less than they should have on pension plans they sold from the mid-1990s until 2003.

The plans offered benefits based on expected rates of return plus the difference between yields from investments and the expected rate of return, also known as the interest dividend rate. If the interest rate on asset management comes in higher than the expected rate of return, the companies were supposed to add the difference to the fund, which is invested until the plan matures.

Money Today said although the expected interest rate set by the insurance companies was 8 percent, they only paid 5 percent after the interest rate from management of assets plummeted to -3 percent after the 1997 Asian financial crisis. The exception was Hanwha Life Insurance.

Financial authorities said the companies should have reflected the 8 percent expected rate of return when paying the benefit at maturity.

The report added that the number of effected policies from Samsung Life Insurance numbered 200,000 cases, with undervalued reserve funds totaling as much as 70 billion won ($61 million).

By Choi Hyung-jo