By Kang Seung-woo
A man in his mid-50s reported to the Financial Supervisory Service (FSS) that a credit card firm seized and cancelled his family’s insurance policies due to a failure to repay his debt from the issuer.
The man, whose wife and son are sick, said that he cannot take care of them without the insurance payments.
According to the nation’s financial watchdog, financial institutions have applied to courts to seize and cancel insurance policies of 76,076 defaulters this year in measures to retrieve funds.
Private money lenders, notorious for illegal debt collection methods, topped the list by taking the insurance payments of 40,646 people, followed by credit card issuers at 18,569, savings banks at 9,123, and banks at 1,200.
The number of those who are taken by financial companies in the first half this year has nearly doubled from a year earlier ― from 36,463 to 71,554.
The FSS assumed that half of the insurance policies were those that paid to cover medical fees for injury and illness.
“The data shows that financial institutions deprived indebted people of insurance payments required for treatment and hospitalization,” said an official of the FSS.
Along with financial companies, state-run agencies with the likes of tax offices and trust guarantee funds cancelled insurance policies to collect money.
On the other side, there is much to be said about the financial firms’ position.
As they lend money to those with low credit ratings, a riskier practice than commercial banks, they have to strictly collect debt to prevent their business performance from getting worse, they said.
As for multi-debtors, particularly, they might not ever repay their loans, so the lender must seize insurance contracts.
“We are not philanthropists,” said an official of a private money lender. “We exercise our rights as creditors in accordance with rules and procedures.”
Taking the severity into consideration, seizure and cancellation of insurance policies have been forbidden since July 6 this year.
Although financial institutions say that they cannot help it, it is self-defense, considering the development of the number in seizure and cancellations since last year.
When a revision to disallow the measures was passed by the National Assembly in March, each financial entity launched aggressive campaigns to get their money back from debtors by cancelling their insurance policies.
In the first three months of 2010, the number of seizure and cancellation at loan sharks stood at 6,875, but it surged to 24,152 as of the second quarter of 2011, a four-fold growth. Credit card issuers and savings banks each also saw a two-fold increase in the cited period, which translates into hurriedly rushing to cancel debtors’ insurance before the rule took effect in July.
An FSS data shows that there were 2,372 insurance contracts that were seized and cancelled during the first five days of July, one day ahead of the new rule enforcement, and the number represented more than half, at 52.5 percent, of the total 4,522.
Despite constant payments, if an insurance policy is cancelled before it comes due, a holder cannot fully retrieve what was paid.
According to the FSS, a debtor, identified as Chung, continually paid the premium for his life insurance since 2006, but a failure to meet obligations had the policy forcibly seized and cancelled. Chung had paid 11.70 million won until then, but the refund was just 500,000 won.
Another debtor, Kim, had to see its long-standing cancer insurance cancelled.
“Policy holders are financially hit hard if their insurance contracts are compulsorily terminated. It doesn’t make sense to cancel long-paid insurance policies to take back a little refund,” the FSS official said.
Insurance firms’ interest also affected the growth.
They believe that they will be able to reduce their losses by paying refunds of cancellations rather than receiving a premium from those who have high risks, which may force them to pay larger sums as insurance payments.
Among local life insurers, Korea Life Insurance saw insurance cancellations increase from 4,552 in the first quarter of last year to 10,124 in the second quarter of this year. Prudential Life of Korea and Tong Yang Life insurance also saw numerous cancellations in the cited period ― from 118 to 1,394 and from 2,823 to 8,095, respectively.
On the non-life insurers’ side, the major players ― Dongbu, Hanwha, Hyundai and Samsung ― were responsible for the increase.
The FSS said that it has asked insurers not to respond to requests of seizure and cancellations of insurance policies.
Since July 6, seizure and cancellations have steadily declined, but taking out from savings-linked insurance is still outside the law, the FSS said.