The government is expected to alleviate the interest rate burden on participants' policy loans by introducing a preferential interest rate system for high-interest insurance contract loans (policy loans) of over 6% as early as the second half of this year. The 'bancassurance' system, which allows banks to sell insurance products, has also changed after 19 years. Until now, banks and others could not exceed a sales share of 25% for specific insurance company products, but this will be eased to 33% for life insurance companies and 75% for property and casualty insurance companies.
The Financial Services Commission and the Financial Supervisory Service announced this at the '6th Insurance Reform Meeting' held on the 21st, chaired by Kim So-young, the vice chair of the Financial Services Commission.
Considering that insurance policy loans often serve as emergency loans for vulnerable groups, the financial authorities have decided to provide preferential interest rates for the first time. The basic interest rate for loans is based on the insurance product's interest rate. As a result, the higher the collateralized high-interest insurance products ranging from 6% to 8% are, the higher the interest rates will be set.
The target for preferential interest rates includes those likely to be in urgent need of loans from vulnerable groups, users of non-face-to-face online channels, seniors over 60, sound borrowers with no overdue loan interest for a certain period, and those who have executed automatic loans to maintain insurance contracts in case of non-payment of premiums. The financial authorities plan to apply preferential interest rates not only to new loans but also to existing loans. Once the system is implemented, it is estimated to result in an interest reduction effect of over 33.1 billion won per year.
Meanwhile, the financial institution insurance brokerage system will be improved after 19 years. The core of this system is to limit the sales share of specific insurance companies to not exceed 25% when banks (bancassurance), credit card companies (cardassurance), agricultural cooperatives, and securities firms sell insurance products as brokers. Unlike other sales channels, this offers the advantage of lower upper limits on commission rates, resulting in lower product prices. However, there has been ongoing criticism that the sales share regulation prevents the sale of products desired by consumers.
Accordingly, the financial authorities have relaxed the existing sales share from 25% in the first year to 33% for life insurance companies and 50% or 75% for property and casualty insurance companies. In the second year, they will reassess the sales share regulations based on interim inspection results and decide whether to maintain such shares considering market conditions.
However, to prevent the concentration of sales in financial holding company affiliates, the sales share for financial affiliates will be limited to 25% for life insurance companies and 33% or 50% for property and casualty insurance companies, respectively. Additionally, to enable fair competition for small and medium-sized insurance companies, the financial institution insurance brokerage must strengthen obligations for comparing and explaining similar products. Specifically, they must provide a list of partner insurance companies when recruiting insurance and ensure that the products consumers wish to purchase are included among the partnered offerings.