"Burdened by Fees"... Insurance Companies' Card Payment Ratio Drops Again

Life Insurers' Card Payment Rate in the 3% Range
Auto Insurance Card Payments Support Non-Life Insurers in the 30% Range
Insurers Say "Long-Term Contracts Cause High Burden... 1% Commission Rate Is Appropriate"

The proportion of insurance premiums paid via credit card has declined again this year. As insurance companies find card fees burdensome and either block or complicate card payments, concerns have been raised that consumers are facing inconvenience.

According to disclosures by the Life Insurance Association on the 5th, the card payment index for life insurers remained at 3.8% in the first quarter of this year, down 0.3 percentage points from 4.1% in the fourth quarter of last year. The card payment index indicates the proportion of insurance policyholders paying premiums by credit card. The life insurance card payment index first rose to the 4% range last year since financial authorities began disclosing the insurance premium card payment index in 2018, but it fell back to the 3% range as of the first quarter this year.

Insurance companies argue that since premium payments are made over a long period rather than as a one-time payment, the fees paid to card companies are a significant burden. In particular, life insurance products often involve long-term contracts and relatively high monthly premiums, making it more burdensome for life insurers. Hanwha Life and Kyobo Life, among the 'Big 3' life insurers, do not accept any card payments, and KDB Life has blocked card payments for all customers except those who had been paying premiums by credit card since the second half of 2016.

On the other hand, from the policyholders' perspective, paying premiums by credit card can be a preferred method as it offers benefits such as card point accumulation. This is also true when there is no cash on hand but premiums need to be paid immediately. An insurance industry official explained, "From the consumer's point of view, having more payment options is convenient, but from the profit-seeking company's perspective, merchant fees are burdensome, so conflicts continue."

According to the National Assembly Research Service, as of last year, the card merchant fee rate applied by card companies to insurers is in the low 2% range. However, insurers are demanding that this fee rate be lowered to the 1% range.

Non-life insurers recorded a card payment ratio of 30.5% in the first quarter, higher than life insurers, but this was a 0.2 percentage point decrease from the previous quarter. Moreover, looking into the details, the high card payment ratio of around 80% for automobile insurance products offered by non-life insurers raised the average. Excluding automobile insurance, long-term protection insurance stands at 15.7%, and long-term savings insurance remains at 3.3%.

Accordingly, a bill to promote card payments of insurance premiums was proposed in the last National Assembly session but remains pending. The amendment includes provisions for separate penalties against insurance companies if they treat policyholders who wish to pay premiums by credit card unfairly.

Professor Seo Ji-yong of the Department of Business Administration at Sangmyung University pointed out, "The average credit card merchant fee rate is originally in the 2% range, and a preferential fee rate of up to 1.5% is applied only to merchants with sales under 3 billion KRW. Insurance companies are large financial institutions with sales far exceeding 3 billion KRW, so it does not seem appropriate to demand a fee rate in the 1% range when they are not preferential merchants under the system."

There are also opinions that different standards should apply to life insurers, who are struggling with performance and sales due to accounting standard changes and aging. A life insurer official explained, "Compared to the asset management yield of insurance companies, there is no real benefit, and since life insurance premiums are higher than those of non-life insurers, it could lead to deteriorating profitability, so we consider the 1% range appropriate."