Samsung Fire & Marine Insurance will reduce the insurance policy loan (contract loan) limit by 30% after 3 years. This reduction is interpreted as a response to the surge in loan balances and the increasing number of policyholders unable to repay their loans. Even the contract loan, which is not subject to the total debt service ratio (DSR) regulation, is becoming more difficult to access, and loan conditions are expected to worsen. Samsung Fire & Marine's contract loan balance was 4.4078 trillion won at the end of last year, the highest among domestic non-life insurance companies.
According to the insurance industry on the 22nd, Samsung Fire & Marine will reduce the contract loan limits for six products, including 'Samsung Super Insurance' and 'Samsung All Life Super Insurance,' to 30% of the surrender benefit from midnight on the 24th of next month. It has been about three years since the limit was reduced from 60% to 50% in 2022. When the surrender benefit is 10 million won, while previously 5 million won could be borrowed, this will now be reduced to 3 million won.
Contract loans allow borrowing up to the limit of the surrender benefit. Since they are secured by the surrender benefit, there is no loan screening and it does not affect credit ratings. For this reason, contract loans are popular among low-income individuals who cannot secure loans from first-tier financial institutions like banks or need immediate cash.
Samsung Fire & Marine explained that the reduction in limits was to prevent delinquencies in contract loans. A company official stated, "There were concerns that the proportion of loans would become excessive as the surrender benefit decreased, which led to the limit reduction." At the end of last year, Samsung Fire & Marine's household loan arrears amounted to 38 billion won, an increase of 18.7% compared to the same period last year (32 billion won).
For contract loans, if interest is unpaid, no late fees are charged. Instead, the unpaid interest is included in the principal amount. As the principal and interest are combined, the interest rate is applied to the total, which means that the longer interest remains unpaid, the higher the burden of interest becomes. If the total amount exceeds the surrender benefit, the insurance contract may be terminated.
Samsung Fire & Marine’s reduction in contract loan limits is also interpreted as reflecting the financial authorities' household loan policy direction. As commercial banks tighten their lending, the need to manage the 'balloon effect' of loan demand shifting to second-tier financial institutions has also increased.
If the reduction in contract loan limits spreads throughout the insurance industry, obtaining loans from second-tier financial institutions will inevitably become more difficult. This is because, starting July 1, the three-stage stress DSR regulation will further reduce loan limits. Second-tier financial institutions have so far only been subject to stress DSR regulations on housing loans, but this will now be expanded to include credit and other loans.
Other insurance companies are also monitoring the trends in contract loans. The balance of contract loans increased from 68.1 trillion won at the end of 2022 to 71.6 trillion won at the end of last year. This is because low-credit individuals who could not borrow money from first-tier financial institutions flocked to contract loans. An insurance company official noted, "We are monitoring the trends in contract loans."