Dongyang Life Applies Preferential Rates to Policy Loans—Insurers Move to Cut Interest Costs by Year-End

(Seoul=Yonhap Infomax) Soo Yong Lee – South Korean insurers are introducing preferential interest rates on policy loans as year-end approaches, aiming to reduce interest burdens for policyholders.

According to the insurance industry on the 21st, Dongyang Life Insurance Co. began offering preferential rate discounts on policy loans earlier this month.

Dongyang Life Insurance is providing a 0.1 percentage point (p) interest rate discount each to senior customers aged 65 and above, as well as to customers with top credit ratings.

Other major insurers, including Meritz Fire & Marine Insurance Co. and Hanwha Life Insurance Co., are set to introduce similar preferential rate categories starting next week. Most insurers are expected to implement preferential rates on policy loans by early next month.

The introduction of preferential rate categories for policy loans follows a directive from the Financial Services Commission (FSC) as part of its insurance reform agenda announced at the beginning of the year.

Policy loans allow policyholders to borrow against the surrender value of their insurance contracts, often serving as a quick liquidity option for households.

While policy loan rates are typically based on the credited interest rate of the insurance product, both regulators and the industry have sought to rationalize the additional margin rate structure. However, concerns remain that the burden on consumers with legacy high-interest contracts has not been fully addressed.

To address this, the FSC has promoted the introduction of preferential rate categories, targeting high-interest insurance products, vulnerable groups, and digital channels for rate discounts.

According to the FSC, applying a 0.1 percentage point preferential rate to policy loans based on outstanding balances at the end of last year could yield interest cost reductions of approximately 33.1 billion won ($25.5 million).

Insurance associations have also revised best practice guidelines to define preferential discount rates for policy loans, with plans to implement these changes in the second half of this year.

As a result, insurers will be required to disclose the criteria and levels of preferential rates for policy loans starting next month, prompting a flurry of activity to ensure interest cost reductions by year-end.

The outstanding balance of household policy loans declined from 71.6 trillion won ($55.2 billion) at the end of last year to 70.2 trillion won ($54.1 billion) in the first half of this year.

An industry official said, "Since we must disclose the status of preferential rate operations early next month, we will expand preferential rates on policy loans from the end of this month," adding, "With multiple preferential criteria in place, insurers will be able to set rates autonomously."

sylee3@yna.co.kr

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