Insurance Premiums Face Upward Pressure as Disclosed Rate Hits 4-Year Low

As interest rates for insurance companies rise, a key benchmark used in setting next year's premiums is decreasing, potentially increasing the cost for policyholders. The Financial Supervisory Service has reported that the average disclosed interest rate for insurers next year will be 2.25%, a 0.25 percentage point drop from this year's 2.50%.

This marks the lowest rate since 2023 and matches the level from 2021, when interest rates were near zero. The benchmark, which is based on a weighted average of insurers' disclosed rates from September last year through August, impacts insurers' business planning and the calculation of assumed interest rates for the upcoming year.

With market rates currently at 4.313%, the highest in three years, the gap between these rates could force insurers to raise premiums next year. Insurers have largely maintained low assumed interest rates despite rising market rates, with some, like Samsung Life Insurance and Hanwha Life Insurance, reducing their rates even further.

To maintain competitive pricing, insurers are considering lowering coverage amounts or benefit limits while keeping premiums stable. Consumers may face the challenge of paying higher premiums or receiving less coverage for the same premium. The life insurance sector is also dealing with declining demand, as new policies issued have dropped 12.9% year-over-year and surrender payouts have surged by 39.2%. Major insurers plan to finalize their assumed interest rates and product revisions by year-end.