Surge in Management Regular Insurance After Short-Term Payment Ends…Attention to Arbitrage Opportunities

The craze for short-term payment whole life insurance has shifted to management regular insurance.

Intense Competition Over Refund Rate at 5-Year Term

With Commissions and Incentives, Refund Rates Can Reach Up to 125%

Financial Supervisory Authority Conducts Comprehensive Investigation of Sales Contracts from January to July

The craze for short-term payment whole life insurance has shifted to management regular insurance. 

Recently, life insurance companies have engaged in fierce competition by offering high refund rates and commissions, prompting financial regulators to take action. 

According to the life insurance industry on the 4th, the refund rate for management regular insurance (with fixed premiums, maturity at 90–95 years) at the 5-year mark is up to 95%. 

Among insurance companies with refund rates exceeding 95% are Hanwha, Kyobo, Shinhan, KB Life, Hana, and MetLife. DB Life and Mirae Asset Life have slightly exceeded 90%, while Samsung Life provides a refund rate in the 89% range.

KB Life Life Insurance, for example, offers an unprecedented premium maintenance bonus of 31.2% of the premiums paid if maintained for 5 years. On the other hand, long-term maintenance bonuses provided for 6-10 years are only about 1-4%.

To raise the refund rate from the previous 80% to over 95%, insurers have utilized expenses from premiums. This intense competition for the 5-year refund rate in management regular insurance has reached a dangerous level, according to industry evaluations.

In addition to the competitive refund rates, commissions and incentives paid to insurance agents are also extraordinary. Commissions are around 1000% of the monthly premium, and incentives can reach up to 300%.

Financial groups such as Shinhan, KB, and Hana have the highest commissions ranging from 1000% to 1070%. For incentives, KB Life offers 170% this month (100% for the next month, 70% after a year), and DB Life offers up to 300% (130% for the next month, 170% after a year), fueling the competition.

A 5-year refund rate of 95% means that if you pay a premium of 1 million won, you will receive 950,000 won if you cancel after 5 years. The issue is the possibility of arbitrage when considering commissions and incentives. With these added, the refund rate could reach 120–125%.

Arbitrage occurs when sellers offer illegal special benefits by utilizing commissions and other incentives. However, industry insiders agree that if a corporation with a high contract retention rate and sufficient premium payment capacity engages in this practice, it is plausible. Additionally, insurers typically do not reclaim commissions paid to sellers even if the insurance contract is canceled after 2-3 years.

An insurance company official commented, "The short-term refund rate for management regular insurance, previously only 80%, has soared to over 95%. The competition for refund rates at specific points, despite not returning the full principal in normal contracts, suggests there are other reasons behind this. With the introduction of a 125% limit for 7-year short-term whole life insurance, insurers are likely using a 5-year structure in a non-standard way."

The Financial Supervisory Authority has also taken notice. At the end of last month, it conducted a comprehensive investigation of management regular insurance sold from January to July across all life insurers, focusing on refund rates, contract types (individual or corporate), sales agents’ registration numbers and affiliations, contract cancellation reasons, and refund rates at cancellation points.

This investigation by the Insurance Examination Bureau emphasizes the examination of sales practices rather than product structures. The focus of this year’s investigations is on arbitrage opportunities created by high refund rates and incentives in management regular insurance.

One target is the practice of using corporate insurance premiums as a ‘corporate tax saving plan’ through incomplete sales or registering family and acquaintances as agents to collect commissions and incentives from corporate premiums.

A representative from the Insurance Examination Bureau stated, “We will analyze the investigation results based on the findings.”

As of this month, life insurers currently selling management regular insurance to both individuals and corporations include Mirae Asset Life, MetLife Life, KB Life Life, and DB Life.

Typically, management regular insurance is used for corporate tax benefits through premium payments. However, individuals do not receive these benefits. The Financial Supervisory Authority is closely monitoring the potential spread of irregular sales practices to individuals.

In response to potential incomplete sales, Hanwha Life and Kyobo Life discontinued selling management regular insurance to individuals in April and May this year, respectively, and NH Nonghyup Life stopped selling it to individuals around August.