There Was a Reason Why Insurance Policy Loan Interest Rates Are High... Financial Supervisory Service Inspects All Insurance Companies

On the 9th, the Financial Supervisory Service announced that it had inspected the additional interest rate calculation system for insurance policy loans across all insurance companies.

Until now, the industry has consistently pointed out that the interest rate calculation system for insurance policy loans is unreasonable. Insurance policy loans are loans that policyholders can apply for within a certain range using the surrender value as collateral while maintaining the insurance coverage function. Since they can be used without credit rating downgrade risk or screening procedures, they are considered a representative "small amount and livelihood-type" financing method for ordinary people. As of the end of September last year, the number of insurance policy loan accounts was 15 million, with an average balance of 4.8 million KRW per account.

The interest rate for insurance policy loans is divided into a base rate and an additional rate. The base rate applies the surrender value interest rate, which is the debt procurement cost. The additional rate consists of liquidity premium, operational costs, legal expenses, and target profit margin.

Through this inspection, the Financial Supervisory Service found some unreasonable aspects in the standard model guidelines of the Insurance Association, which serve as the basis for loan interest rate calculation. In the case of the liquidity premium, due to the nature of the interest rate calculation method, opportunity costs from market interest rate fluctuations unrelated to insurance policy loans were reflected. Operational costs included expenses such as corporate tax costs that are less related to loan operations. Regarding the target profit margin, there were many issues, such as fixing the additional rate without separate calculation and then deducting other cost elements to determine it.

A Financial Supervisory Service official stated, "We will reasonably improve the additional interest rate calculation system for insurance policy loans through future revisions of the model guidelines."