The Financial Supervisory Service (FSS) has belatedly warned consumers of the risks of foreign currency insurance products, including dollar insurance, which have been sold by foreign insurance companies such as MetLife, AIA and Prudential Life Insurance. Foreign insurers sold more than 50,000 cases of dollar insurance over the past year, promoting it as a “foreign exchange investment product,” but they did not inform their customers of the possibility that they could receive a small amount of insurance payments because of exchange rate fluctuations and the decline in interest rates in other countries.
Experts say that the financial regulator has made a preemptive move as complaints can be filed by consumers when insurance payment dates approach. However, critics say the FSS action came too late, given that the cumulative premium income of foreign insurance companies reaches 4 trillion won (US$3.39 billion).
The FSS released unprecedented precautions on foreign currency insurance products, including dollar insurance, on July 17. It advised customers not to buy a foreign currency insurance product, which is a long-term investment product, for a short-term foreign exchange investment purpose. The FSS said, “If the exchange rate goes up at the time of insurance premium payment, a policyholder has to pay a higher premium. If the exchange rate goes down at the time of insurance money receipt, the amount of insurance benefit can decrease.”
Foreign currency insurance products are mainly sold by five life insurance companies, including MetLife, AIA and Prudential Life Insurance. After the products debuted in South Korea in 2003, the cumulative number of sale cases stood at 140,000 as of the end of May and the cumulative amount of premium income of insurance firms came to 3.80 trillion won (US$3.22 billion). Amid growing uncertainty in the global market, fueled by the trade dispute between the United States and Chinalast year, more than 50,000 foreign currency insurance policies were sold in the past year in an excessive boom.
Industry insiders note that insurance companies do not provide a full explanation for the long-term risks of foreign currency insurance. The number of new foreign currency insurance contracts in Japan recorded 600,000 in 2017, but the number of civil complaints related to the foreign currency products which were submitted to the local life insurance association and life insurers came to 2,076, up 12.3 percent from a year ago.