Life Insurance Companies In Financial Difficulties Asks Increase In Premium

Voices insisting on the increase of a premium, including both existing and future contraction, are flowing from the life insurance companies in worse financial difficulties due to super low interests. And if they increase the premium, the fixed interest will go down, which will make customers to pay more now or get less later on.

Yet the current law prohibits from cutting prearranged interests. And even if a special law is legislated, it will results in a large loss on behalf of the customers. Hence the Financial Supervisory Service (FSS) has turned down this proposal, especially afraid of the blame that the government steps in the private contract infringing customer`s right. Insurance companies, knowing the situation, still do not withdraw their proposal.

Cautiously watching the attitude of government and public opinion, they insist, `` if the super low interests continues, many life insurance companies will file bankruptcy, and in this case customers receive the biggest damage.`` According to FSS, an earning rate of 23 life insurance companies is only 4.7 percent; while the fixed interests rate to customers is 7.5 percent per year. This is so called a reversed margin of profit and they have recently marked average 3 percent of reversed margin of profit. Accordingly, domestic life insurance companies had 2 trillion and 740 billion (won) of loss last year.

In the case of Japan, life insurance companies had suffered from a serious reversed margin of profit right after the World War II in 1948. And a special law that allows a reduced interests limited to existing contract was made; however, the law was abolished in early 1990.

Nowadays, Japan is also searching for alternative plans to help life insurance companies after 8 insurance companies` bankruptcy last year. Financial Service Committee, Japan Financial Minister`s consultative body, recently proposed that they should partly allow changing the prearranged conditions of contraction if a large number of customers approve it in a special case.

An official of FSS said, `` The biggest cause of the financial difficulties of life insurance companies results from mainly the loss of their investment on stock and partly from the super low interests.`` He also added, `` The current situation is not an emergency to consider the legislation of a special law. And the financial problems of insurance companies should be solved with more desirable and long-term answers, not with a stop-gap policy.``

Lee Hoon dreamland@donga.com