Some of major life insurance companies in South Korea would be forced to close down their business at worst as the nation’s financial authority is preparing to impose strict punitive measures against life insurers that have refused to pay suicide benefit claims to their policyholders.

According to the financial authority and sources from the insurance industry on Thursday, the Financial Supervisory Service (FSS) warned Samsung Life Insurance, Hanwha Life Insurance, Kyobo Life Insurance and Allianz Life Insurance earlier this week of possible heavy disciplinary actions against their refusal to pay suicide benefits to their policyholders. The possible measures include suspension of business, turning in operation rights, and advising chief executives to step down. Fines would also be imposed.

Among them, partial business suspension, considered the lightest possible measure, would ban insurers from selling particular products and impose sales restrictions in some areas, which can affect overall marketing and sales activities. If they are forced to return their business rights, they may have to close down their business at the worst case scenario. A chief executive of an insurance firm who receives a warning from the FSS will not be allowed to serve another term after the current one ends.

The four insurers that have been notified of such possible punitive actions are due to submit explanatory documents to the FSS by December 8. After reviewing the submitted documents, the financial authority will decide on the level of disciplinary measures against them.

The controversy over the insurers’ unpaid suicide benefits goes back to 2001 when Dong-Ah Life Insurance Co., now KDB Life Insurance Co., stated in the terms and conditions of an accidental death benefit rider product that death benefits will be provided to policyholders even in the case of a suicide. Other insurance companies soon followed suit, introducing similar products by copying Dong-Ah Life Insurance’s initial terms and conditions that include suicide coverage.

In 2014, the FSS launched an inspection into life insurers to check there had been any violation of the terms and the conditions and found out most of life insurance companies had refused to pay suicide benefits. Insurers have been arguing that the suicide coverage plan was mistakenly included in their terms and conditions so they can refuse to pay the benefits. The FSS, however, note that even if the terms and conditions have been written incorrectly, insurers should be obliged to follow the clauses.

Amid a brewing controversy, the Supreme Court on September 30 ruled in favor of insurance companies that they “need not provide suicide benefits once statute of limitations runs out.” But the FSS has reiterated the initial argument and decided to push ahead its plan to impose punitive measures against the insurers regardless of the court’s ruling.

The FSS has already taken light disciplinary actions - a fine of in between 1 million won ($855) and 6 million won - against each of five life insurers including Metlife Insurance, Heungkuk Life, Shinhan Life, PCA Life, and Chubb Life that have agreed to provide policyholders all of unpaid suicide benefits. The FSS is still to decide on the level of disciplinary actions against seven other insurance companies including Samsung Life Insurance that have not yet provided claimed suicide benefits.

By Park Joon-hyung

[ⓒ Pulse by Maeil Business News Korea & mk.co.kr, All rights reserved]