Life Insurance Companies Safe From Financial Crisis

Life insurance companies around the world are going through difficult times following the onset of the global financial crisis ― AIG, the biggest insurer, practically collapsed. Life insurers here, meanwhile, are relatively better off due to strict regulation of derivate products, according to Korea Life Insurance Association Chairman and CEO Lee Woo-cheol. ``The life insurance industry is facing difficulties as the worsening economy has begun to affect it. They are having problems managing their assets amid interest rate falls, and monthly premium payments are falling. Some subscribers are canceling insurance policies and the solvency margin ratio has fallen. However, they are in much better shape compared with insurers in other countries,'' Lee said in an interview with The Korea Times. Indeed, figures have worsened for life insurance industry. Their net income for the third quarter of 2008 stood at 761 billion won, plummeting by 948.3 billion won from a year ago. The solvency margin ratio, which represents their fiscal soundness to pay insurance money, fell by 29 percentage points.However, life insurers here, though small in global scale, have successfully survived, thanks to strict regulation on life insurers' investment in derivative products. Life Insurance Industry Needs DeregulationThough regulations on derivative investments helped them withstand the global crisis, the life insurance industry needs deregulation from a broader perspective, according to Lee. This is true when one focuses on the imbalances in the financial industry, especially between insurers and banks. ``Banks, and securities and insurance companies are the three main pillars of the financial industry. However, the system has been focused on banks, and the insurance industry has had little support while regulation was tight.'' He said it needs a more rational regulatory system to become a future growth engine for the country.``After the financial crisis, banks strengthened their grip on the financial market,'' the chairman said, pointing out that while banks now have various income source including insurance product sales, insurers have been unable to diversify customer services. He said insurers should be allowed to provide payment and settlement services ― once they are permitted to do so, as the government plans, insurance subscribers will be able to pay utilities fees, credit card bills or transfer money through their insurance accounts. ``It is a global trend to allow non-bank financial businesses to offer payment and settlement services, as it gives customers more choices and induces market players to cut costs through competition,'' Lee said. Currently, banks levy up to 3,000 won in fees for transferring money to other banks. The chairman, however, was cautious about the introduction of general agencies that sell all kinds of financial products, including insurance ― life insurance products are much more complicated. ``Insurance products are long-term ones, covering risk and managing assets based on an analysis of the individual customer's needs and financial condition. Selling insurance with other financial products could lead to a flawed sales procedure.'' He said that an analysis on effects and consumer benefits should come first before allowing insurance products on their sales list.Lee also showed concern over insurance fraud, which is growing explosively, as fraudsters become cleverer, and more systematic and massive. ``It is estimated that 2.2 trillion won in insurance money was wasted due to fraud in 2006. This means each household is paying 140,000 won more in insurance premiums than they should.''Police and insurers caught 30,922 people engaged in insurance fraud in 2007. He said insurers should have more power to investigate insurance frauds. Life Insurers Contribute to the CommunityLife insurance companies around the world are actively engaged in social contribution programs, giving back part of their earnings to the community. Lee explained that life insurers here are running social contribution programs from various spheres, running their own programs as well as participating in joint programs by the industry. In November 2007, for example, life insurance companies here announced they would set up the Life Insurance Philanthropy Foundation, promising to raise 1.5 trillion won to contribute to the community over the next 20 years. The foundation donated 1.9 billion won to patients suffering from rare diseases and 860 million won to low-income senior citizens suffering from dementia. The association also donated one billion won to a campaign to prevent suicide, and 470 million won to solving the problem of low birth rates and giving medical treatment to premature babies. It also has given 9.7 billion won so far to organizations dedicated to activities for the public good.The association is also contributing to job creation, planning to hire 20,000 more salespeople this year. Insurance Essential in Aging SocietyLee said in a country like Korea which is seeing an unprecedented pace of aging, people need insurance policies. ``The population aged 65 or older reached 7.4 percent in 2001, categorizing the country as an aging society. It is expected to become an aged society by 2020 with the ratio reaching 15.1 percent,'' the chairman said.He pointed out, however, that the state welfare system here is not good enough to guarantee a stable life after retirement. He said that the life insurance industry makes up for the loopholes, providing insurance products such as whole-life, annuity and nursing insurances.As insurance policies are safety nets for the family economy, the chairman advised people not to cancel policies if they can. ``It is better to keep insurance policies especially when the economy is bad. I think life insurance is the means of practicing love for one's family and respect for life,'' Lee added.He recommended integrated insurance products, which protect against various risks in life such as disease, injury, and death or disasters at relatively small premiums. chizpizza@koreatimes.co.kr
Who Is Lee Woo-cheol?Lee is a widely respected leader in the financial sector, especially known for his gentleness, open-mindedness and modest manner. Born in Buyeo, South Chungcheong Province in 1948, he graduated from the prestigious Gyeonggi High School and majored in law at Seoul National University. He started his career in the public sector after passing the examination for higher civil service in 1975. After serving at key posts at the finance ministry, building up expertise on macro economics and the financial industry, Lee moved to the financial regulator job in 1998, and served as deputy governor at the Financial Supervisory Service. He started his three-year term as the chairman and CEO of the Korea Life Insurance Association from last December. He got masters degree in public administration from Harvard Kennedy School, and another degree in economics at the University of New York at Albany.