Posted April. 09, 2009 08:14,
The majority of mutual aid companies are financially unhealthy, a Fair Trade Commission survey released yesterday said.
Mutual aid companies collect monthly subscription fees and provide subscribers with services on ceremonial occasions such as funerals and weddings. When bankrupt, 80 percent of them were found to be able to return less than 75 percent of the money their subscribers contributed, and 20 percent could return nothing.
About three million people nationwide are affiliated with such companies.
The Fair Trade Commission conducted a written survey of 269 mutual aid companies in February. The results found that 167 (74.7 percent) are financially unstable with the ratio of net assets to dues under 75 percent. This means a subscriber who has contributed one million won (740 U.S dollars) can retrieve less than 750,000 won (555 dollars) if the mutual aid company he or she belongs to goes under.
The commission said, More than 20 percent of mutual aid companies have no net assets. When such companies go bankrupt, subscribers cannot retrieve their money.
An additional on-the-spot survey is being done on 138 mutual aid companies that did not take part in the written survey.
With no regulations on financial soundness and operation of membership fees, such companies arbitrarily manage their funds and suffer losses, eventually becoming insolvent, according to the commission.
Heated competition among such companies has resulted in large commissions going to those who recruit subscribers, another reason for the growing insolvency of such companies.
Commissions for recruiters used to be 10-20 percent of membership fees but this has soared to 40-50 percent, a commission official said. The financial structure of these companies is worsening.
Certain companies were also found to collect new subscribers with advertisements featuring entertainers and provide services to existing members with money from new subscribers.
The government has submitted a revised bill to installment transaction law requiring mutual aid companies to deposit 50 percent of subscription fees in financial institutions within five years and allow only companies with more than 300 million won (222,000 dollars) in capital to operate.
With more than half of mutual aid companies suffering a drop in net assets to below 50 percent of membership fees, many of them will be forced to close when the revision is implemented.
Jeong Myeong-geun, secretary general of an association of mutual aid companies, said, Low-income elderly make up a large portion of subscribers. So if the revision becomes law, subscribers to companies that fail to pass muster will be victimized.