Authorities Issue 'Warning' Over Surge in Policy Loans... Insurers Consider Further Reducing Limits

Financial Authorities Urgently Convene Insurers Exceeding Policy Loan Targets

Insurers Consider Further Lowering Limits and Reducing Marketing

Industry Voices Concerns Over Limits of Total Volume Control

Insurance companies that exceeded the insurance policy loan (policy loan) management targets set by the financial authorities last month are considering further reducing their loan limits. This move comes after the financial authorities convened the relevant insurers on June 25 and requested them to faithfully implement household debt management plans.

According to the insurance industry on June 26, the outstanding balance of policy loans at five major life insurers (Samsung Life, Hanwha Life, Kyobo Life, Shinhan Life, and NH NongHyup Life) increased by about 1 trillion won, rising from 40.215 trillion won at the end of last year to 41.228 trillion won as of May this year. The outstanding policy loan balance for these five companies decreased by 60.6 billion won from 40.701 trillion won in March to April, but then increased by 527.4 billion won (1.3%) in May, reversing the trend within just one month.

A policy loan is a loan where policyholders can borrow money using the surrender value they would receive if they canceled their policy as collateral. Typical household loan products offered by insurers include mortgage loans, unsecured loans, and policy loans.

For the five major non-life insurers (Meritz Fire & Marine, Samsung Fire & Marine, Hyundai Marine & Fire, KB Insurance, and DB Insurance), the outstanding policy loan balance declined slightly from 14.724 trillion won at the end of last year to 14.659 trillion won as of May this year. However, in 2024, the balance fell to 14.700 trillion won in March and 14.607 trillion won in April, before rising again to 14.659 trillion won in May, showing repeated fluctuations. The combined outstanding policy loan balance for these ten life and non-life insurers surged by 579.4 billion won in a single month, reaching 55.887 trillion won at the end of May.

Policy loans are relatively easy to obtain because they are secured by the surrender value of the policy, and they are subject to less regulatory oversight than general loans. As a result, demand for policy loans has increased as banks have tightened their lending criteria and people in need of quick cash have turned to policy loans. Some analysts also attribute the rise to more people using policy loans to raise funds for leveraged stock market investments, as the bullish trend in the stock market continues.

With the rapid increase in policy loans raising concerns, the financial authorities convened five insurers—Kyobo Life, Hanwha Life, Heungkuk Life, Tongyang Life, and Samsung Fire & Marine—on the previous day for an intensive review of their household loan management plans after they exceeded the May household loan management targets. It has been reported that some of these insurers exceeded their management targets by more than 100 billion won. Although the authorities did not issue separate reduction targets or management guidelines, they received reports from each company on the reasons for exceeding the targets and their future management plans.

An official from the Financial Services Commission stated, "If the management targets are not met within the agreed timeframe, we will convene the companies again," adding, "If other insurers also exceed their management targets in the future, we will conduct the same type of review."

Insurers are planning to control the total volume by lowering the loan limit relative to the surrender value or minimizing marketing for policy loans. Some companies have already reduced the loan limit against the surrender value from the previous 90-95% range to around 80-85% and are considering further adjustments. Previously, in April, when the financial authorities called for stronger risk management for policy loans, insurers collectively lowered the policy loan limits relative to the surrender value by 10 percentage points from previous levels.

However, the insurance industry argues that policy loans are fundamentally different from general unsecured or mortgage loans. Because policy loans are secured by the policyholder's own surrender value, it is difficult for insurers to refuse a loan application from a customer.

An insurance company representative said, "A policy loan is a product that customers use within the scope of the surrender value of the insurance policy they hold, and it is different in nature from general household loans," adding, "While we agree on the need for government management of household debt, the system should be operated in a way that does not cause undue inconvenience for customers seeking to access their funds."

This content was produced with the assistance of AI translation services.