[Monster GA]② Holding Insurance Companies Tight with 'Super Gapjil'... A Disaster Caused by Practices

Using Superior Position to Cover Dinner and Overseas Travel Expenses
Violations Aimed at High Commissions... Regulatory Sanctions Ineffective
Transient Fraudulent Agents → Leading to Increase in Incomplete Sales

[Editor's Note] It is no exaggeration to say that South Korea's insurance industry, which ranks sixth largest in the world, owes its growth to the sales efforts of insurance planners. Starting from informal sales among acquaintances, it has grown into corporate insurance agencies (GAs) specializing in sales. GAs, which can sell products from all insurance companies and all insurance products, have achieved 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]

① Illegal sales by GAs, insurance companies also responsible

② GAs eroding trust in insurance

③ GAs need to enhance sales expertise

[Asia Economy Reporter Oh Hyung-gil] Insurance corporate agency (GA) A demanded travel expenses from 27 insurance companies with which it had contracts in 2016 to send 630 outstanding planners on an overseas trip to Cebu, Philippines, and received several hundred million won. This demand continued in 2017 and 2018 when trips were made to Thailand and Guam. The travel expenses received by this GA from insurance companies over three years amounted to tens of billions of won.

Planner B, who worked at a GA, falsely claimed that 11 insurance contracts recruited over 10 months from November 2016 to August 2017 were recruited by planner C, who belonged to the same GA, and received recruitment commissions of 7 million won. Under the current Insurance Business Act, insurance planners are prohibited from recruiting insurance under another planner's name. B was fined 5.1 million won after this was detected.

Large insurance corporate agencies (GAs) are known as 'super bosses' in the insurance market. This is because the annual performance of insurance companies can be determined by GAs that have high-performing planners. Since GAs with high-value planners and insurance companies are linked in a master-servant relationship, unfair demands and power abuse using superior positions are openly practiced.

Higher commission demands are basic, and they even cover expenses for dinners, overseas trips, and golf rounds. Competition to scout planners among GAs is fierce, so job changes are frequent depending on conditions. This leads to frequent cases of incomplete sales and orphan contracts. The financial supervisory authorities' sanctions have not improved these practices, according to industry complaints.

◆ GAs with many super planners... a black hole of incomplete sales = In the mid-2000s, GAs that sold products from most life and non-life insurance companies rather than a specific company emerged and were expected to grow into 'department stores of insurance.' However, they have become the main culprits eroding trust in insurance due to violations such as creating false contracts on an organized and large scale to obtain commissions.

The Financial Supervisory Service recently detected violations of the current Insurance Business Act by 18 GAs and their planners, including failure to fulfill the obligation to explain insurance products and failure to obtain handwritten signatures from policyholders, and imposed sanctions. Some GAs received business suspension orders of 90 days and 60 days, in addition to fines amounting to tens of millions of won.

Planner A of Woosung Asset Insurance Agency violated the obligation to explain insurance products in the process of recruiting 12 contracts and even signed on behalf of a client in one case, which was detected by authorities. A received a 90-day business suspension. Also, Korea Financial Center, which received a 60-day suspension, had two planners who recruited 31 insurance contracts in 2015 and provided policyholders with information that differed from the facts.

A-plus Asset Advisor, a GA, was fined the highest amount of 83.6 million won. Seven planners belonging to it violated the obligation to explain insurance products in the process of recruiting 54 insurance contracts.

The current Insurance Business Act prohibits insurance planners from providing false information or withholding important information about insurance products to policyholders or insured persons. However, practices such as creating false contracts worth tens of billions of won to inflate sales, arbitrarily using the obtained commissions, or engaging in commission arbitrage by canceling contracts after recruitment to obtain commissions and surrender refunds are widespread.

Recently, most GAs have expanded their organizations into branch-type federations to increase commissions, but since individual branches perform all tasks without the headquarters' control, there are concerns that management and supervision are inevitably lax.

◆ Producing transient and 'eat-and-run' planners... half of planners leave within a year = The incomplete sales rate of GAs slightly decreased from 0.36% in 2016 to 0.28% in 2017 and 0.21% in 2018. However, it remains higher than home shopping (0.17%), insurance companies (0.12%), and bancassurance (0.04%).

The primary cause of rampant incomplete sales by GAs is biased insurance information. According to the '2018 Life Insurance Propensity Survey,' 84.4% of insurance consumers cited 'insurance planners' as their source of product information. Although all insurance companies are strengthening their digital business sectors, the proportion of information obtained through internet searches (13.1%) or insurance company websites (7.9%) remains very low.

The motivation for subscription was 'planner recommendation' at 42.6%, higher than specific event occurrence (26.5%) or general awareness of necessity (22.3%). This means that most insurance subscribers obtain information and motivation to subscribe through planners, creating a financial environment where planners can easily provide incorrect information or misuse information intentionally.

Frequent job changes by planners also lead to incomplete sales. Customers trust planners when subscribing but cannot find their planners when management is needed. As of the first half of last year, the retention rate of planners in the top five GAs by number of planners was only 54.4%.

According to the Financial Consumer Federation, the survival rate of life insurance planners after joining (registration retention rate at 13 months as of the first half of 2019) was only 38.2%. This means that six out of ten planners leave within one year of joining. By length of service, less than one year was 29.1%, 1-2 years 16.1%, 2-3 years 9.0%, 3-4 years 5.9%, 4-5 years 4.2%, and over 5 years 35.6%.

Baek Hong, director of the Insurance Department at the Financial Consumer Federation, criticized, "The life insurance industry has recruited insurance planners under the slogan of nurturing experts, but in reality, it has grown through an outdated sales method of recruiting contracts through relatives or acquaintances and discarding them once the 'sweet spot' is gone, rather than cultivating planners."

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