[Insurance Companies Targeting Seniors]④ Increasing Refunds with Longevity? Unprecedented Insurance Structures

The increase in single-person households and the acceleration of aging are revealing the limitations of traditional insurance products such as whole life insurance. Accordingly, the need to introduce new types of insurance products is being raised. In particular, the Tontine pension insurance, known as the 'longevity pension,' which can prepare for longevity risk, is gaining renewed attention.

Tontine insurance is a form of insurance devised by the 17th-century Italian banker Lorenzo Tonti. The core of this insurance is that if a subscriber dies early, the difference between the subscriber's accumulated funds and death benefit is used as pension resources for other subscribers. In other words, the longer one lives, the more pension one can receive, hence the nickname 'longevity pension.'

In the past, this structure raised ethical concerns because the death of one subscriber leads to an increase in the pensions of others. However, in the era of aging populations, Tontine insurance is gaining renewed attention as a countermeasure against longevity risk. In Japan, life insurance companies have been selling Tontine insurance since 2016, starting with Nippon Life.

Kang Seong-ho, head of the Aging Center at the Korea Insurance Research Institute, stated, "Considering that all insurance products can potentially be misused, ethical issues are not limited to specific products," and added, "What is important is not the structure of the product itself but how it is managed and utilized."

Recently, the issue of introducing Tontine insurance has also ignited in Korea. In March, at a press conference commemorating his 100 days in office, Kim Cheol-ju, chairman of the Life Insurance Association, announced plans to revitalize low-surrender-value pension products. These products pay lower surrender values if the insurance contract is terminated early but increase the pension amount for customers who maintain the contract for a long time. For this reason, the industry calls it the 'Korean-style Tontine pension.'

Another insurance type gaining attention in the era of 'living long with illness' is the 'insured with pre-existing conditions pension insurance.' This product, also introduced by Chairman Kim, pays higher pension amounts to insured persons with below-average life expectancy due to health impairments. Unlike general pensions that mainly consider gender and age, this product provides higher pensions if the health condition is poor, and it is mainly subscribed to by elderly people in retirement.

According to the Korea Insurance Development Institute, insured with pre-existing conditions pension insurance is most active in the UK, where it was first introduced in 1995. By 2020, it accounted for more than 30% of all pension insurance. Chairman Kim has also expressed support for developing insured with pre-existing conditions pension insurance as one of the growth strategies for the life insurance industry, sparking discussions on this product.

However, before introducing new insurance products, consumer protection measures must be established first. Due to the complex structure, if consumers do not fully understand the product and subscribe, issues of incomplete sales may arise. Kang emphasized, "Since public pensions cannot perfectly guarantee old-age security, insurance companies need to play a complementary or supplementary role," and explained, "From that perspective, proactive pension product strategies by insurance companies are necessary."