Financial Authorities Alarmed by DLF, Warn Against Aggressive Sales to Boost 'Bancassurance' Performance

"Bancassurance Contract Performance, Side Effects When Reflected in KPI"

Unusual Interpretation of Financial Institutions' Voluntary KPIs

Movement to Avoid Banks' Excessive Performance Demands

[Image source=Yonhap News]

[Asia Economy Reporter Oh Hyung-gil] The financial authorities have stated that bank employees responsible for wealth management (WM) of individual customers should not be excessively pressured to achieve bancassurance (insurance sales through banks) performance targets. This is interpreted as the financial authorities recognizing the seriousness of reckless competition following a large-scale derivative loss incident and cracking down on banks' sales practices.

According to the financial sector on the 20th, the Financial Supervisory Service recently responded to commercial banks with a legal interpretation stating, "If insurance contract signing performance is reflected in the key performance indicators (KPI) of personal customer managers, there is a concern that individuals who are not licensed insurance solicitors may be encouraged to solicit insurance, so please exercise caution in your operations."

This is understood to mean that it is inappropriate to reflect bancassurance subscription performance in the job evaluations of bank WM or relationship managers (RMs) who are not qualified insurance solicitors. The current Insurance Business Act restricts the qualifications of solicitors to prevent harm to insurance contract holders caused by unqualified solicitation.

Bancassurance, which was expected to be a new sales channel when it emerged in 2003, has been treated as a representative product for meeting quotas in bank sales operations alongside loan performance and credit card issuance.

From the insurance companies' perspective, bancassurance has become a 'gyeruk (鷄肋, literally "chicken rib," meaning something of little value but hard to discard).' As sales competition intensified, banks frequently received up to 99% of the contract signing costs as solicitation commissions when selling bancassurance products. This meant that most of the business expenses were passed directly to the banks.

In particular, it is unusual for the authorities to provide specific opinions on the 'KPI,' an employee evaluation system conducted by banks, which is also interpreted as a warning about incomplete sales within banks, such as the recent overseas interest rate-linked derivative-linked fund (DLF) incident and Lime Asset Management incident.

A financial authority official pointed out, "Employee performance evaluations should be left to the autonomy of financial institutions," but added, "Operating employee evaluations that encourage insurance solicitation by unlicensed individuals is inappropriate even from the perspective of internal bank controls."

Furthermore, this legal interpretation by the authorities is expected to directly impact the ongoing KPI reform efforts by banks. There have been demands both inside and outside banks to improve KPIs, which have been abused as a means to increase non-interest income such as sales commissions.

In response, Shinhan Bank changed its KPI evaluation method from relative evaluation to absolute evaluation starting this year. Except for five items?customer value growth, customer base, profit, delinquency rate, and policy indicators?all other indicators will be eliminated. Additionally, customer returns will be reflected in the KPI, and evaluations will be made on whether suitable products were sold to customers and whether after-sales management was conducted.

Woori Bank also reduced the number of KPI evaluation indicators applied to branches from 24 to 10. They plan to significantly increase the weighting of customer indicators such as customer returns and customer care to establish a customer-centric sales culture.

A senior financial sector official said, "As banks focused on external competition, KPIs were operated mainly based on sales performance, which pressured employees to achieve results," adding, "The competition should shift from how many products were sold to how satisfied customers are."

This content was produced with the assistance of AI translation services.