Major insurers are cutting interest rates following public criticism that they are too high compared to banks.

According to industry sources, Kyobo Life Insurance will reduce the ceiling on its policy loan rate of vested interest-based-insurance products from the current 13.5 percent to 10.5 percent in October. Policy loan rates will be managed at between 6.1 percent and 10.5 percent.

Customers in urgent need of money often use policy loans as they enable policyholders to borrow 70 to 80 percent of the surrender value. The system has faced criticism, however, as the interest rate can surpass 10 percent.

An official at Kyobo Life Insurance said that the firm is also looking into lowering borrowing spreads as well.

Heungkuk Life Insurance and Allianz Life Insurance Korea decided to cut both policy loan rates and borrowing spreads by next month to practice co-existence management, although some products may see losses.

Heungkuk will lower the ceiling of the policy loan rate of insurance products based on vested interest from the current 13.5 percent to 11.5 percent in September. It will also lower the borrowing spreads of vested interest from 1.5 percent to 0.5 percent.

In the case of Allianz, it will decrease its ceiling on policy loan rates from the current 13.5 percent to 11 percent next month.

NH Nonghyup Life Insurance already cut the policy loan rate this month from 6.2 percent to 6.1 percent. Hana HSBC Life Insurance and PCA Life Insurance Korea also dropped the rates from 4.8-6.55 percent to 4.38-6.45 percent and from 4.9-7.5 percent to 4.6-6.5 percent, respectively.

Samsung Fire & Marine Insurance, however, increased the lowest policy loan rate last month from 4.5 percent to 4.75 percent.

“The prime ace driver’s license product to which the lowest interest rate used to apply is no longer available, so the lowest rate was moved up to 4.75 percent. It is not because we raised the rate itself,” said an official at Samsung Fire & Marine Insurance.

By Park Min-young  (claire@heraldcorp.com)