Yes, interest rates on savings accounts are rising… 4050 thinking about ‘should I cut savings insurance’

With the recent increase in market interest rates and interest rates on bank deposits and savings accounts, savings insurance subscribers have increased cancellation concerns. Currently, in the banking sector, products that give interest rates of 5% for deposits and 10% for installment savings are being released and are becoming more and more popular. As a result, interest in canceling savings insurance policies purchased at lower interest rates than in the past has increased. In particular, there were more cancellation concerns in the age group with a high proportion of savings insurance assets such as 4050.

According to the Insurance Research Institute on the 27th, the search volume for ‘savings insurance cancellation’ on Naver, a major domestic portal, began to increase from the end of September and continued to rise during October. On the other hand, it was found that there was no significant change in the search volume of cancellation of other insurance items such as health, variable, pension and whole life insurance during this period.

Currently, the search volume information provided by NAVER DataLab shows the relative search volume information obtained by converting the peak search volume to 100. The weekly search volume for ‘cancel savings insurance’ started to increase in the 4th week of September (21.46), increased rapidly in the 3rd week of October (72.15), and reached a peak of 100 in the 4th week of October.

[자료 보험연구원, 네이버 데이터랩]

From the end of September to October, when interest in canceling savings insurance increased, the gap between deposit and installment savings interest rates, which began to be higher than the rates published by insurance companies, and the published rates widened significantly .

Public interest rates of insurance companies that manage assets mainly with long-term bonds tend to be sensitive to the level of long-term interest rates, and bank deposit and installment rates tend to be sensitive to short-term interest rates. The 10-year and 3-year Treasury yields reversed in September 2022, with short-term interest rates higher than long-term rates. In other words, customers focus on banking products that respond to short-term interest rates.

The Bank of Korea took a baby step on the 24th, raising the base rate by 0.25 percentage points. The base rate has risen four times since July this year to 3.25%. As Bank of Korea Governor Lee Chang-yong has suggested an interest rate hike to control inflation, there is a high possibility that the base rate will rise in the future.

Kim Sae-joong, a researcher at the Insurance Research Institute, said, “If the savings insurance is canceled midway, the profitability is lowered and the incentive to cancel is reduced.” As the perception that it can be recovered spreads, the churn rate can soar immediately,” he explained.

If the actual savings insurance cancellation rate rises, it is negative for the insurance company in terms of asset management. Looking at the change in the interest from canceling savings insurance by age group, it was found that interest in the 40s to 50s and older has increased significantly compared to those in their 20s and 30s. As people in their 40s and 50s may have a relatively large subscription amount and a relatively low propensity to move money, their departure will inevitably have a negative impact on the decline in insurance company assets for a significant period of time.

The researcher suggested that if the difference between the interest rate of deposit and installment savings and the interest rate issued by insurance companies widens further, the cancellation of savings insurance may continue, so countermeasures are needed.

Research Fellow Kim said, “The phenomenon of shifting consumer money caused by the yield difference between financial products is a natural phenomenon in accordance with market principles, so it is a priority for insurance companies to improve the competitiveness of savings insurance products in order to maintain insurance subscribers’ contracts.” As the maturity of savings insurance, which has increased subscriptions due to the change, is approaching maturity, consideration needs to be given to designing low-fee savings insurance to re-attract maturity insurance funds and strategies for linking pension products to convert them into old-age assets.”

Reporter Kim Jeong-hoon jhoons@edaily.co.kr