"Mandatory Disclosure of Insurance Agent Commissions Needed"…'Anxious' Insurance Companies (Comprehensive)

Regulatory Amendments Scheduled for March Next Year Proposed One After Another
Insurance Agent Commission Must Be Disclosed When Signing Up
"Understand the Purpose of Introduction... Sales Contraction Inevitable"

[Image source=Yonhap News]

[Asia Economy Reporter Oh Hyung-gil] The insurance industry is already anxious about the Financial Consumer Protection Act (FCPA), scheduled to take effect in March next year. This is because a series of amendments strengthening legal regulations on incomplete sales have been proposed. There are concerns that excessive restrictions could be imposed on sales activities, which are already shrinking due to the resurgence of the novel coronavirus disease (COVID-19).

According to the insurance industry on the 31st, legislative moves to enact amendments to the FCPA aimed at strengthening financial consumer protection and rights have been gaining momentum in the political sphere following the subprime private equity fund scandal that erupted last year.

The FCPA primarily stipulates that financial companies violating sales conduct regulations, such as the duty to explain or prohibition of unfair solicitation when selling financial products, may be fined up to 50% of their income.

In particular, the recently proposed amendments to the FCPA contain provisions that could directly impact the insurance industry.

The core of the amendment, introduced by Jeon Jae-su of the Democratic Party of Korea on the 13th of last month, is the introduction of a 'punitive damages system' allowing consumers to claim compensation up to three times the amount of damages if consumer harm occurs due to illegal acts by sellers (financial companies).

Additionally, the burden of proof for damages compensation is shifted to financial product sellers, and brokerage agents are required to disclose sales commissions.

If consumer damage occurs due to incomplete sales, insurance companies must prove that there were no illegal factors during the sales process. This will inevitably make insurance subscription procedures, such as direct signatures or recordings, more stringent, which the industry argues will act as another barrier to insurance enrollment.

The requirement for insurance planners and corporate agencies (GA) to disclose sales commissions and fees to consumers is also becoming a burden for the industry. An insurance company official lamented, "If sales commissions, which have not been disclosed to consumers or outsiders until now, are exposed, the income of planners may be unintentionally revealed, or the insurance company's sales strategies could be fully exposed."

On the other hand, there is also an expectation that incomplete sales will decrease due to commission disclosure. According to the Financial Supervisory Service's inspection results on GAs, GAs engage in unhealthy sales practices focused on high commissions, and affiliated planners are conducting incomplete insurance sales activities such as false contracts, unfair contract transfers, and contracts under others' names to encourage contracts mainly for high-commission products.

Furthermore, Yoon Chang-hyun of the United Future Party has introduced an amendment imposing liability for incomplete sales compensation on GAs. It assigns primary compensation responsibility to planners if they cause financial consumer damage during insurance solicitation.

Through this, there is a positive outlook that the practice of some GA-affiliated planners presenting only high-commission products instead of suitable insurance products to subscribers could be resolved.

However, it is uncertain whether compensation will be properly enforced given that most GAs are one-person operations or small to medium-sized firms. As of September last year, out of 4,477 total GAs, 4,290 were small to medium-sized GAs with fewer than 100 planners. There are also more than 25,000 individual agencies. This suggests that effectiveness may be limited.

An insurance industry official said, "While we agree with the intention to strengthen consumer protection, excessive burdens could be imposed at a stage where insurance sales channels are not yet mature," adding, "With the resurgence of COVID-19 making normal sales activities difficult, regulatory measures from the National Assembly could further shrink business operations."

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