[Financial Microscope] Life Insurers See Rising Retention Rates...Long-Term Management Remains a Challenge

Improved Retention in Whole Life Policies Drives Overall Growth
Boosting Long-Term Retention in Annuity Insurance Remains a Challenge
"Retention Performance Should Be Linked to Planner Compensation"

Life insurance companies have raised the retention rates of their major products by up to 12.8 percentage points over the past six half-year periods. This is being seen as a sign that the overly competitive environment, marked by a surge in mis-selling and unfair replacements due to short-term performance battles, is improving. However, there are still challenges, such as enhancing product design and sales tailored to customer needs, and increasing the long-term retention rate for certain products like annuity insurance. Some also advise that a compensation system should be established to link agents’ incentives directly to policy retention performance.

Life Insurers See Uptrend in Policy Retention Rates... Whole Life Insurance Drives Gains

According to an analysis of disclosures from 22 life insurers for the six half-year periods from the first half of 2023 to the second half of last year, retention rates for key products increased by 2.4 to 12.8 percentage points for each policy duration. The rise in retention rates indicates not only a restoration of consumer trust in the insurance market, but also positively impacts profitability indicators such as the Contractual Service Margin (CSM), which reflects insurers’ future profits.

The 13th-month retention rate—the percentage of policyholders who paid premiums for 13 months after enrollment—among the 22 life insurers rose from 80.7% at the end of the first half of 2023 to 88.4% at the end of the second half of the previous year, a 7.7 percentage point increase. Over the same period, the 25th-month retention rate climbed from 63.2% to 76.0%, up by 12.8 percentage points. The 37th-month retention rose from 56.2% to 58.7%, a 2.5 percentage point gain, while the 61st-month retention increased from 40.0% to 42.4%, improving by 2.4 percentage points.

The improvement in whole life insurance retention, the core product, played a decisive role in boosting overall retention rates. As of the end of the second half last year, this product’s in-force contract amount—representing currently active coverage—stood at 16.7884 trillion won, and its valid new contract amount—excluding policies canceled due to death, withdrawal, etc.—was 22.3335 trillion won, the largest portion among major life insurance products. Major products for life insurers include whole life, critical illness (CI), annuity, savings, cancer, children, and indemnity health insurance. The retention rate is calculated by dividing the in-force contract volume by the valid new contract volume.

An industry official explained, “The overall improvement in retention is largely due to the sharp rise in the sale of limited-payment whole life insurance since 2022, which substantially increased the 13th- and 25th-month retention rates. More recently, the trend has shifted to boosting profitability by focusing on long-term payment whole life and protection-type insurance.”

However, it is pointed out that at the time, some insurers aggressively raised surrender values to outperform competitors, thereby encouraging policyholders to retain their policies for a certain period, and this must also be considered.

Another industry official noted, “At that time, limited-payment whole life products were designed to ensure death protection, but also offered high surrender values after a set period, making them more attractive compared to deposit rates. While consumers gained more choices—with the potential for both coverage and refunds—there is also a chance that they may cancel their policies to receive the surrender value. Therefore, it remains to be seen if long-term retention rates, such as the 61st-month rate, will remain high.”

Improving Long-term Retention of Annuity and Some Other Products Remains a Task

The declining long-term (37th- and 61st-month) retention rates for products such as annuity and variable insurance remain a significant issue for the life insurance sector. Particularly for annuity insurance, which has become a key portfolio due to growing retiree income concerns in an aging society, there is a shared recognition that long-term retention must be improved.

Based on disclosures from the 22 insurers, as of the second half of last year, the 13th-month retention rate for annuity insurance was 90.4%, up 7.5 percentage points from the first half of 2023, while the 25th-month retention rate increased by 14.4 percentage points to 78.5%. However, the 37th-month retention rate fell by 5.2 percentage points to 51.8%, and the 61st-month retention rate dropped by 7.8 percentage points to 34.1%.

An industry representative commented, “For annuities, as policies reach years 3 to 5 after inception, perceived returns tend to decline and the burden of long payment periods grows, leading to more cancellations. Some policyholders have chosen to terminate their contracts and reinvest the proceeds in other assets, such as stocks, even if they incur partial losses on surrender value.” The representative added, “Life insurers need to provide more detailed information on expected pension amounts and surrender values, and enhance their management systems—especially for the critical 3 to 5-year customer period.”

Reward Outstanding Agents for High Retention Performance

The life insurance industry recognizes that policy retention management is more than just a factor for increasing sales—it has become a core pillar of sustainable management. A notable example is Kyobo Life's CEO and chairman of the board, Shin Changjae, who highlighted retention management capability as a key indicator for the future of the life industry.

At Kyobo Life’s 68th anniversary ceremony held at its headquarters in Jongno-gu, Seoul on August 7, Shin emphasized, “Field sales managers must prioritize nurturing and securing ‘farmer-type’ agents who raise awareness about the need for life insurance and keep policies in force until claims are made, rather than ‘hunter-type’ agents who focus only on signing up new policies.” He further urged, “Increase agent retention and protection rates so that coverage is maintained from enrollment to payout. Make every effort to ensure complete protection for our customers.”

The financial supervisory authorities are also closely monitoring insurers’ maintenance of retention rates. The Financial Supervisory Service, in its April 29, 2025, announcement of ‘Sales Channel Efficiency and Supervision Directions for Insurance Companies,’ pointed out that the two-year (25th-month) policy retention rate for life and non-life insurers last year was just 73.8%—significantly lower than in major markets such as Singapore (96.5%), Japan (90.9%), Taiwan (90.0%), and the United States (89.4%).

The industry expects that, following changes by the financial authorities, the “1200% Rule” was applied to corporate insurance agency (GA) agents starting last month, and with the introduction of installment-based commission payments next year, retention rates are likely to rise. Previously, agents often received commissions upfront, but, starting next year, commissions must be paid over four years, and from 2029, over seven years. Once the installment system is established, competition for new contracts is expected to ease, shifting both insurers’ and agents’ focus toward managing and maintaining long-term policies over short-term performance.

An industry official explained, “Until now, the GA channel fueled excessive competition for high commissions and short-term sales, prompting agents to recommend higher-commission or easier-to-sell products over those that best suit customers’ needs. The expansion of the 1200% Rule and the introduction of installment commissions will shift the industry toward a more sustainable sales model that prioritizes consistent customer protection over single-minded pursuit of new contracts.”

Experts also stress that it is urgent to establish a compensation system providing greater incentives to agents who maintain high retention rates over a long period. Seo Jiyong, Professor of Business Administration at Sangmyung University, noted, “Rather than just increasing product sales, life insurers need to directly link agent compensation structures to retention performance. Along with embedded installment commissions, insurers should also strengthen checks on customers’ premium payment capacities and conduct regular reviews of ongoing coverage to make a tangible improvement in long-term retention.”

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