Insurance policy sales volume fell to its lowest-ever level this year as the prolonged economic slump has prompted people to skimp on preparing against near-future risks.

If the interest rate drops by another 1 percentage point or more, life insurers as well as small and medium-sized nonlife insurers are bound to see losses starting 2015, the Korea Insurance Research Institute warned.

Financial Service Commission chief Kim Seok-dong compared the insurance companies to “a train heading towards a cliff.”

Korea’s entrance into a low-growth, low-rate era makes insurance carriers’ outlook even cloudier.

As insurance policies are long-term products, asset management is crucial for insurers. They have so far invested heavily in government bonds, but with the bond rates going downhill, there are limited alternatives. Insurance companies are likely to post negative margins on products for which they promised high yields.

By Kim So-hyun (sophie@heraldcorp.com)