"Do You Pay Savings with a Card?"... Insurance Companies Oppose Mandatory Card Payment for Insurance Premiums

Reintroduction of Insurance Premium Card Payment Bill in 21st National Assembly After Failing in 20th
Insurers Oppose Penalties for Refusing Card Payments
Only 5% of Life Insurers Accept Card Payments, 29% for Non-Life Insurers
Differences in Commission Fees Between Insurers and Card Companies Hard to Narrow

[Asia Economy Reporter Oh Hyung-gil] In May 2018, the Financial Supervisory Service (FSS) issued a warning to insurance companies that discouraged credit card payments for premiums and encouraged cash payments. This was due to cases where only the first premium was accepted via credit card, but from the second installment onward, credit card payments were refused, or customers had to apply for card payments each month via phone calls or branch visits, making the process cumbersome.

The FSS promoted credit card payments for insurance premiums, excluding savings-type insurance products, to enhance consumer convenience. However, insurance companies were reluctant due to the burden of card fees. Card companies also firmly opposed any fee reductions. Although related bills were repeatedly proposed in the National Assembly, they ultimately failed in the 20th National Assembly.

As a bill allowing insurance premiums to be paid by card was reintroduced in the 21st National Assembly, controversy has arisen. There are opposing views: one advocating that insurance companies should increase card payment options for consumer convenience, and the other warning that the fee burden could lead to premium increases, ultimately harming consumers.

According to the insurance industry on the 18th, Lee Jung-moon, a member of the Democratic Party of Korea, recently proposed an amendment to the Insurance Business Act that allows insurance companies to accept payments via credit cards, debit cards, or prepaid cards when collecting premiums.

The bill includes a penalty clause stating that refusing card payments constitutes discrimination against card users and can result in imprisonment of up to one year or a fine of up to 10 million KRW.

The rationale is the low rate of card payments by insurance companies. The total insurance premiums received via card payments by 18 domestic life insurance companies amounted to 717.6 billion KRW in the first half of the year, accounting for only 4.5% of the total premiums of 16.1225 trillion KRW.

The card payment ratios for Samsung Life Insurance, MetLife, and ABL Life Insurance are at the lowest levels of 0.1% to 0.2%. Kyobo Life Insurance, Hanwha Life Insurance, and Orange Life currently do not allow card payments for their insurance products. Card payments are only accepted for products that previously allowed them.

On the other hand, non-life insurance companies allow card payments to some extent. As of the first half of the year, the credit card payment index for 15 non-life insurers was 28.8%. Out of total premiums of 19.5348 trillion KRW, 5.6315 trillion KRW were paid by card.

AXA General Insurance had a credit card payment ratio of 79.9% of total premiums, followed by ACE Insurance and Hana General Insurance at 67.5% and 60.7%, respectively. Large companies such as Samsung Fire & Marine Insurance, Hyundai Marine & Fire Insurance, DB Insurance, and KB Insurance recorded ratios between 25% and 35%.

National Assembly Building / Photo by Mun Ho-nam munonam@

Insurance Premiums, a Large Portion of Household Expenses, Face Difficulties in Card Payments... Fee Conflicts Lead to 'Stalemate'

The high card payment ratio among non-life insurers is due to the allowance of card payments for automobile insurance. The card payment index for automobile insurance reaches 77.8%. In contrast, the card payment indices for long-term protection insurance and savings-type insurance are only 13.0% and 5.2%, respectively. Insurance companies with affiliated card companies or those with a high proportion of contracts through non-face-to-face channels tend to have higher card payment ratios.

The life insurance industry explains that this is due to structural reasons preventing card payments. Automobile insurance is paid once a year, reducing the fee burden and allowing card payments, but monthly premium payments incur significant fee burdens.

Card companies reportedly charge insurance companies fees of 2% to 3% of the payment amount. For a whole life insurance policy with a monthly premium of 200,000 KRW, accepting card payments would mean paying 4,000 to 6,000 KRW in fees every month.

Insurance companies argue that card fees should be reduced to the 1% range. However, card companies claim that meeting insurance companies' demands would make it difficult to cover system maintenance costs below cost.

With the low-interest environment lowering the expected interest rate (the anticipated return on invested premiums) to the 2% range, fees become a significant burden. Insurance companies encourage payments via account transfers by offering discounts.

Financial authorities also recommend card payments to insurance companies but approach the matter cautiously, as forcing card payments could lead to premium increases due to reduced profits from fees.

Especially since discussions on fee reductions have not progressed, insurance companies argue that if a law penalizing refusal of card payments is enacted, they will not even be able to negotiate with card companies.

An insurance industry official said, "Although public utility bills and taxes can be paid by card, insurance is different in nature," and added, "They say refusing card payments discriminates against card users, but if card payments are allowed for insurance premiums, I want to ask if installment savings or fund investments will also allow card payments."