Moon Mun-young, a researcher at the Korea Insurance Research Institute, issued recommendations on the 26th for insurance companies to strengthen suitability assessments and consumer explanations for dollar-denominated insurance products amid surging sales. The recommendations came as dollar insurance sales reached approximately 47,000 contracts in Q1, more than double the previous year's figure, driven by exchange rate profit expectations during a prolonged high-exchange-rate environment. The report titled 'Consumer Risks and Challenges of Dollar Insurance in High Exchange Rate Phases' warned that sales expansion relying on short-term exchange rate rise expectations could lead to increased cancellation rates and consumer complaints.
Dollar Insurance Sales Surge in Q1 Amid Exchange Rate Expectations
Dollar insurance sales in Q1 reached approximately 47,000 contracts, more than double the figure from the same period in the previous year, as prolonged high exchange rates increased demand for exchange rate profit opportunities. The researcher noted that dollar insurance products primarily serve risk protection purposes rather than exchange profit investment, exposing contract holders to exchange rate and interest rate fluctuations throughout the contract period. Products typically require 5 to 10 years or more until insurance payment, and policyholders who cancel mid-term to respond to short-term exchange rate changes may receive surrender values lower than paid premiums.
Cancellation Data Shows Loss Risks in 2024
Foreign currency insurance new contracts in 2024 increased more than threefold compared to the previous year, with contract maintenance burden and mid-term cancellation loss risks growing during the same period. Cancellation counts in 2024 decreased 3.9% year-over-year, but cancellation amounts increased 50.4% and average cancellation amount per contract rose 56.5%, indicating heightened cancellation burden centered on high-value contracts. Average refund rates for cancelled contracts remained below 90% each quarter, with protection products showing quarterly average refund rates of 59.8% to 68.0%, demonstrating relatively high principal loss risks upon mid-term cancellation.
Researcher Recommends Strengthened Suitability Checks and Monitoring
Moon stated that insurance companies must confirm subscription purposes and risk tolerance capacity at the sales stage to prevent dollar insurance from being misunderstood as investment products aimed solely at exchange profits, and must strengthen explanations about product characteristics and risk factors. Companies should sufficiently verify subscribers' dollar expenditure plans, contract maintenance possibilities, and understanding of exchange rate and interest rate fluctuations, and provide balanced explanations about loss possibilities from exchange rate declines, accumulation interest rate drops, and mid-term cancellations. The researcher added that after sales, companies must inform subscribers of changes in contract conditions and continuously monitor retention rates and cancellation trends. Companies should examine retention rates, cancellation rates, and complaint occurrence trends by sales channel, product, and subscriber group, and when abnormal signs occur, strengthen customer guidance and consultation while supplementing product structures and sales methods.
FAQ
What did the Korea Insurance Research Institute recommend on the 26th regarding dollar insurance?
Moon Mun-young, a researcher at the Korea Insurance Research Institute, recommended on the 26th that insurance companies strengthen suitability assessments and consumer explanations for dollar-denominated insurance products, verify subscribers' dollar expenditure plans and contract maintenance possibilities, and continuously monitor retention rates and cancellation trends.
How much did dollar insurance sales increase in Q1?
Dollar insurance sales in Q1 reached approximately 47,000 contracts, more than double the figure from the same period in the previous year, driven by exchange rate profit expectations during a prolonged high-exchange-rate environment.
What cancellation risks did the 2024 data reveal for foreign currency insurance?
In 2024, foreign currency insurance cancellation counts decreased 3.9% year-over-year, but cancellation amounts increased 50.4% and average cancellation amount per contract rose 56.5%. Average refund rates for cancelled contracts remained below 90% each quarter, with protection products showing quarterly average refund rates of 59.8% to 68.0%.
