Growing 'Yueondae-yong Trusts'... Insurance Companies Rapidly Catching Up to Banks [1mm Financial Talk]

5 Major Commercial Banks' Will-Substitute Trust Assets Reach 3.3 Trillion KRW in Q1
Insurance Companies Also Enter Market Amid Rapid Growth
Market Expected to Expand Rapidly with Introduction of Insurance Claim Trusts in Second Half

The market for testamentary substitute trusts, where financial companies handle inheritance procedures, is rapidly growing due to aging and changes in population structure. The five major commercial banks have been leading this market, but recently insurance companies have also joined, intensifying competition.

According to financial authorities on the 11th, Kyobo Life Insurance recently received approval from the Financial Services Commission to operate property trust services. Having entered the money trust business in 2007, Kyobo Life has now succeeded in entering the property trust sector, enabling it to offer comprehensive property trusts.

Kyobo Life’s challenge in comprehensive property trusts aims to develop businesses such as testamentary substitute trusts and gift trusts. A testamentary substitute trust is a product where customers entrust assets such as cash, real estate, and stocks to a financial company, receive operating income while alive, and upon death, the assets are inherited according to a pre-agreed contract. Unlike handwritten wills, which are invalid if not properly formatted, testamentary substitute trusts are established through trust contracts, ensuring that assets are distributed as designed during the customer’s lifetime. With the rapid increase in the asset share held by the elderly due to aging and the rise in inheritance disputes, demand is surging.

The testamentary substitute trust market is led by the five major domestic commercial banks: Kookmin, Shinhan, Hana, Woori, and NH Nonghyup. As of the end of the first quarter of this year, the entrusted balance of testamentary substitute trusts at these five banks was 3.3 trillion won. This has been increasing annually from 880 billion won at the end of 2020, 1.34 trillion won at the end of 2021, 2.05 trillion won at the end of 2022, to 3.11 trillion won at the end of 2023. While previously centered on high-net-worth individuals, the minimum subscription amount is gradually decreasing due to the popularization of inheritance trusts. Currently, the minimum subscription amount ranges from 50 million to 1 billion won.

As the testamentary substitute trust market expands, competition is expected to intensify with other insurance companies, including Kyobo Life, preparing related products. Currently, six insurance companies have obtained trust business licenses: Samsung Life, Mirae Asset Life, Hanwha Life, Kyobo Life, Heungkuk Life, and Samsung Fire & Marine Insurance. Except for Samsung Fire & Marine Insurance, all have acquired comprehensive trust business licenses. Samsung Life and Mirae Asset Life have been selling testamentary substitute trusts early on, while Hanwha Life and Heungkuk Life are reviewing product development.

What insurance companies are paying more attention to is the insurance claim rights trust, which will be introduced in line with related legal amendments in the second half of this year. This trust manages insurance proceeds on behalf of deceased customers and allows them to be used as intended. For example, if a whole life insurance policyholder subscribes to this product, the life insurance proceeds paid after death are not given to the children in a lump sum but distributed over a specific period, generating operating income and reducing inheritance tax burdens. In March, the Financial Services Commission announced a revision to the Enforcement Decree of the Capital Markets and Financial Investment Business Act to include insurance claim rights within the scope of trustable assets, and the legislation is currently under review by the Ministry of Government Legislation. The review is expected to be completed by the third quarter of this year.

However, since subscribing to insurance claim rights trusts is also possible through banks and securities firms, competition within the financial industry is expected to become even fiercer. Some banks are already preparing products that link testamentary substitute trusts and insurance claim rights trusts. The industry estimates that the insurance claim rights trust market based on life insurance will reach 800 trillion won. Lee Kyung-hoon, a senior researcher at Woori Financial Research Institute, said, "Although the inheritance-related trust market in Korea is still in its early stages, it is expected to grow rapidly within the next 5 to 7 years," adding, "It is necessary to prepare for market growth through expanding professional personnel, digitalization, and broadening the customer base."