"Short and Short"… Growing Interest in Short-Term Payment for Whole Life Insurance

High Performance Bonuses Set for Short-Term Whole Life Insurance
Targeting MZ Generation Demand... Advantageous Under IFRS17

Life insurance companies are focusing on selling whole life insurance policies with short premium payment periods. This is interpreted as an effort to target the MZ generation (Millennials + Generation Z), whose demand for whole life insurance has steadily declined, while also increasing the number of protection-type insurance policies that are advantageous under the new accounting standard (IFRS17).

According to industry sources on the 8th, life insurers have continued to offer high performance bonuses to insurance agents for short-term premium whole life insurance policies this month. Samsung Life Insurance offered a 280-320% incentive (a separate performance bonus in addition to the product sales commission) for 5-7 year short-term premium whole life insurance. This means that when a product is sold, the agent receives 2 to 3 times the customer's monthly premium as a commission. Hanwha Life also decided to pay a 400% incentive for the H3 whole life insurance with a 5-7 year premium payment period. Kyobo Life and Shinhan Life also offered 450% and 400% incentives respectively for short-term premium products. They are putting effort into marketing short-term premium whole life insurance products.

Short-term premium whole life insurance is a product that reduces the premium payment period of traditional whole life insurance to 5-7 years. Although the premium per payment is relatively expensive, the shorter payment period reduces the time it takes for the surrender value to reach 100% of the premiums paid. The premium payment period for traditional whole life insurance could be up to 30 years. While it is a representative product of life insurers, it is a product where beneficiaries receive insurance money upon the insured's death. As mortality rates improve and single-person or two-person households increase, demand has been declining. Especially facing the risk of reduced future demand due to rejection by the MZ generation, insurers have taken short-term premium products as a breakthrough. A representative from a major insurance company explained, "We judged that the short payment period could attract the interest of younger generations," adding, "We also understand that there is considerable demand from middle-aged people with uncertain future income."

From an accounting perspective, selling short-term premium whole life insurance is also beneficial. Under the new accounting standard IFRS17, introduced this year, savings-type insurance such as annuities is marked to market and classified as liabilities, while protection-type insurance such as whole life insurance is calculated as assets. Compared to savings-type insurance, which is greatly affected by interest rate fluctuations, whole life insurance is advantageous for stable performance management. Because of this, there are concerns about overheated competition for short-term premium products. A representative from an insurance company said, "Not only large companies but also insurers without exclusive agent organizations are intensifying competition by offering high commissions through insurance agencies."

However, the financial authorities are currently taking a wait-and-see approach as they plan to introduce a system from July to prevent loopholes such as arbitrage transactions. Arbitrage transactions refer to the act of canceling insurance policies and pocketing the difference when the insurance recruitment commission exceeds the premiums paid by the customer. Until now, loopholes have been exploited by canceling policies one year after subscription, taking advantage of the fact that insurers could reclaim commissions paid to agents only within one year. In response, the authorities plan to extend the commission reclamation period to a maximum of 2-3 years starting next month. A Financial Supervisory Service official explained, "It is not yet at a level where the authorities need to intervene, and since the new standards will soon be applied, we need to observe the situation a bit more."