[Monster GA] ① Insurance Companies Also Held Responsible for Incomplete Sales by Corporate Agencies

Financial Authorities "Action If Prior Knowledge Involved"
GA Arbitrage Exploits Insurance Commission Standard Loopholes
Dominating Sales Market... Taking Measures Against Market Disorder

[Editor's Note] It is no exaggeration to say that South Korea's insurance industry, which ranks sixth in the world, originated from the sales efforts of insurance planners. Starting from informal sales through acquaintances, it has grown into corporate insurance agencies (GA) specializing in sales. GAs, which can sell all insurance companies' products, have experienced remarkable quantitative growth but have also faced criticism as unhealthy sales actors aiming for commissions. Asia Economy analyzes the problems of GAs and seeks solutions for the insurance market, which has reached growth limits through innovation.

[Series Order]

① Illegal Sales by GAs, Insurance Companies Also Responsible

② GAs Undermining Insurance Trust

③ GAs Must Enhance Sales Expertise

[Asia Economy Reporter Oh Hyung-gil] To prevent incomplete sales by insurance corporate agencies (GAs), which have rapidly emerged as major sales channels in the insurance market due to their growing influence, financial supervisory authorities are introducing measures to hold the insurance companies that outsource sales responsible as well.

This means assigning management and responsibility to insurance companies during the process of concluding sales contracts with GAs. This measure comes as side effects have been emerging due to GAs growing large enough to affect insurance companies' market shares and the increasing dependence of insurance companies on GAs.

◆ GAs Become Giants... Also Control Market Share = According to financial authorities and the insurance industry on the 10th, the Financial Supervisory Service (FSS) is reviewing plans to establish GA management and supervision measures for the insurance companies that outsource sales. The financial authorities believe that if insurance companies are aware of or tacitly allow incomplete sales by GAs, action is necessary.

An official from the authorities said, "This is based on the judgment that sales contracts between insurance companies and GAs can leave room for incomplete sales," adding, "We plan to strengthen internal controls within GAs and induce insurance companies to take responsibility for GAs' incomplete sales to enhance management."

The reason financial authorities are strengthening sanctions is that GAs' channel dominance in the insurance market has grown at a frightening pace. According to the FSS, as of the end of September last year, there were 596,310 insurance planners in South Korea. Among them, 408,826 planners belong to GAs, accounting for 68%. In the offline insurance sales market, the number of planners equates to competitiveness, meaning 7 out of 10 insurance planners belong to GAs. Although the number of GAs has remained around 5,700 over the past three years, the number of affiliated planners has steadily increased.

In particular, some large GAs have expanded quantitatively to the extent that their number of affiliated planners approaches 10,000, surpassing the scale of insurance companies. Recently, new sales organizations such as one-person GAs that transact directly with insurance companies have also emerged.

Having achieved economies of scale, GAs exert absolute influence over insurance sales. The number of new contracts concluded by medium to large GAs with more than 100 affiliated planners in 2018 was 13.18 million, a 28.5% increase from 10.25 million the previous year. The commission income from insurance sales also exceeded 6 trillion won in 2018.

Accordingly, if GAs concentrate sales on products from specific companies, they can even change the rankings within the insurance industry. In fact, it is an open secret that some insurance companies pay excessive commissions to GAs to sell more of their products. The money GAs have earned from securing insurance contracts amounts to trillions of won. In 2018, the total commission income earned by about 180 medium to large GAs with more than 100 affiliated planners reached 7 trillion won.

◆ Authorities Draw the Sword... Insurance Companies Also Responsible When Market Order Is Disrupted = According to an investigation by the FSS, there have been frequent cases of GAs exploiting loopholes due to flaws in the commission and incentive payment standards between insurance companies and GAs. Insurance companies operated excessive recruitment commission payment standards to achieve sales performance in competition, which ultimately created an environment where GAs could engage in unhealthy sales such as false contracts and commission payments to unqualified persons, aiming for these commissions.

Arbitrage refers to the situation where the commission or incentive received by planners from insurance companies exceeds the insurance premiums or recovery fees payable to the insurance companies, resulting in a profit margin.

Exploiting these gaps, cases of incomplete sales where GAs cancel contracts after recruitment have recently been repeatedly detected. Last month, the FSS identified inadequate management of insurance recruitment commission payment standards at Meritz Fire & Marine Insurance, Mirae Asset Life Insurance, and Shinhan Life Insurance, and issued improvement orders.

The financial authorities analyzed whether arbitrage occurred in thousands of contracts concluded through GAs with Meritz Fire & Marine Insurance from 2016 to 2018 that were canceled between the 8th and 16th premium payments. The results showed that arbitrage contracts accounted for 42.6% of all canceled contracts. Especially for contracts concluded between January and September 2018, arbitrage occurred in 59.4% of contracts canceled within a specific period.

In the case of product A, it was confirmed that GAs who canceled contracts after paying 12 premiums earned an arbitrage profit of 426%, which is the difference between the recruitment commission (1626%) and the premiums paid (1200%), excluding the surrender value. Excessive commissions were set, so the commissions received exceeded the premiums paid to the insurance company.

Mirae Asset Life Insurance also recruited 1,748 insurance contracts through some GAs from 2016 to last year, of which 199 were canceled between the 3rd and 19th premium payments. Shinhan Life Insurance set commissions and incentives for variable whole life insurance products as high as 2200%.

An industry insider said, "It is practically impossible to conduct full inspections or uniform management of the approximately 30,000 insurance agencies," and pointed out, "Along with institutional improvements, insurance companies and GAs need to prepare measures to strengthen their own management."

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