FSS seeks business suspension on three insurers over suicide benefits

South Korea’s financial regulator said it would seek unprecedentedly strong punitive measures against three major insurers for their failure to pay out benefits for suicide claims.

The Financial Supervisory Service said late Thursday night that it has decided to ask for suspensions against three life insurers – Samsung Life Insurance, Hanwha Life Insurance and Kyobo Life Insurance.

The suspensions, subject to review by the Financial Services Commission, will ban the insurers from selling new insurance policies on disaster-caused deaths for one to three months.

The three insurers have been criticized for refusing to pay out benefits for death claims in recent years and the FSS began an investigation into the three firms in 2014.

Samsung Life Insurance faces a suspension for three months, Hanwha, two months, and Kyobo one month, the FSS said. Kyobo Life received the weakest penalty because it promised to pay out on all overdue suicide insurance claims just before the FSS’ punishment assessment committee met.

“Although the insurance firms had cited in their policy terms that they would pay out benefits if a subscriber commits suicide two years after the effective date of the insurance policy, they deliberately did not pay out the benefits, and did not explain to the beneficiary their reasons for not paying,” the FSS said in a note.

“Our decision is not legally binding but will be finalized after being submitted to the Financial Services Commission.”

The amount of overdue payments that have not been made for suicide claims mounts to 160.8 billion won at Samsung, 113.4 billion won at Kyobo and 105 billion won at Hanwha, respectively.

Benefits for disaster-caused deaths including suicide are two or three times larger than those for general deaths.

The punitive measures also include 390-890 million won in penalties for each company. Kyobo Life CEO Shin Chang-jae received an attentional warning and Hanwha Life CEO Cha Nam-gyu and Samsung Life CEO Kim Chang-soo, a stronger reprimand warning.

Cha and Kim are likely to face difficulty in getting their terms renewed because receiving a third-degree punitive warning, if finalized by the FSC, will bar them from serving as executives at financial companies for three years.

The term of Kyobo’s Shin, which expires on March 17, can be renewed.

Since then-Donga Life Insurance, now KDB Life, sold the first a policy covering suicide in 2001, more than 10 Korean life insurers sold similar policies between 2003 and 2010. In 2010, the insurers changed the terms of their policies to exclude suicide.

Since the FSS punished ING Life for not paying out the full benefits for suicide and only paid those awarded for general death in 2013, suicide insurance benefits have been a hot issue in Korean society.

Insurers have refused to pay out the benefits, saying the suicide provision was incorrectly inserted into the terms and that payments for suicide might encourage people to kill themselves.

(yoonmi@heraldcorp.com)