Banks pay voice phishing insurance premiums for customers — but there's a catch

Competition among banks to enroll customers in voice phishing compensation insurance is intensifying. Banks are not only signing up visitors at their branches but also reaching out to rural communities with high concentrations of elderly residents to offer free enrollment. While the push aligns on the surface with the financial authorities' inclusive finance policy, observers inside and outside the industry see it as a strategy to limit future losses ahead of a pending no-fault compensation regime for voice phishing victims.

As of the end of April, a combined 136,675 customers had enrolled in voice phishing compensation insurance through the country's five major banks — KB, Shinhan Bank, Hana, Woori and NH NongHyup Bank — according to industry data.

Voice phishing compensation insurance covers financial losses suffered through voice phishing or messenger phishing scams. It typically reimburses 70 percent of the loss, up to a maximum of 10 million won ($6,720).

Since 2024, several banks have offered free enrollment to branch visitors, covering monthly premiums of around 5,000 won on customers' behalf. With inclusive finance becoming a central policy priority under the Lee Jae-myung administration, free enrollment support has been spreading across the industry.

NH NongHyup Bank, which serves a large share of elderly customers — a demographic particularly vulnerable to voice phishing — has been especially active. The bank launched its insurance enrollment drive in earnest in March and surpassed 23,000 cumulative enrollees within two months. As of Wednesday, the figure stood at 129,014.

The bank's Pohang branch has been promoting the insurance at local community events, while its Anyang Hogye Financial Center has been partnering with senior welfare facilities and other local institutions to raise awareness.

Shinhan Bank is running a separate anti-voice-phishing initiative in partnership with the Financial Supervisory Service and the Korean National Police Agency. It has also launched an online prevention education course and offers free voice phishing compensation insurance to those who complete it.

Behind the banks' intense competition lies a pending no-fault compensation regime for voice phishing that is expected to take effect soon.

Under no-fault compensation, financial institutions would be required to compensate voice phishing victims regardless of whether the institution was at fault. Amendment bills introduced separately by Democratic Party of Korea lawmakers Kang Jun-hyeon and Jo In-cheol are currently pending in the National Assembly, with the party and government targeting passage in the second half of the legislative session.

Once enacted, commercial banks would be required to compensate victims for up to 50 million won irrespective of fault. However, when a victim holds voice phishing compensation insurance, the insurer pays out first, reducing the bank's actual compensation burden.

For example, if a policyholder suffers 20 million won in losses, the insurer would pay 10 million won first, leaving the bank liable for only the remaining 10 million won. The more customers enrolled in such insurance, the less banks ultimately have to pay — a structure that in effect makes the insurance a tool for limiting bank losses, and a key reason banks are pouring resources into marketing it.

"When a victim is already covered by insurance, the compensation ceiling we face is lower, so there is an incentive to support free enrollment," an official at one commercial bank said. "When you consider what we might have to pay out later, the insurance premiums we cover are not a significant burden."

Another industry official said there is growing awareness that AI-driven advances in fraud techniques have made scams difficult for ordinary people to detect. "It will also be an opportunity for banks to enhance their brand image," the official added.

The government and the industry have been building emergency call-blocking systems and a voice phishing information-sharing platform under a comprehensive anti-voice-phishing plan announced last August. As a result, the number of voice phishing cases fell by roughly 5,000 — from 14,461 in the same period a year earlier to 9,353 between last October and this April. Financial authorities have also decided to immediately freeze the accounts of suspects linked not only to voice phishing but also to investment advisory room scams and secondhand goods fraud.