Controversy Over Fairness of Insurance Company Fines: "Why Are Fines Different for the Same Violation?"

Penalty Surcharge Insurance Premium Standards Set
2-3 Times Difference Even for Same Violation
Penalty Imposition System to Be Revised

[Asia Economy Reporter Oh Hyung-gil] Financial authorities are set to revise the criteria for fines imposed on insurance companies. This move comes amid fairness concerns raised over the current system, which bases fines on earned premiums rather than the intentionality of violations or the scale of damages. In practice, even for the same violations, the amount of fines imposed on insurance companies varies by two to three times.

According to financial authorities and the insurance industry on the 20th, some members raised issues regarding the criteria for imposing fines on insurance companies during the third Financial Services Commission meeting held in February.

The issue originated from partial inspections conducted last year on AXA General Insurance, Heungkuk Fire & Marine Insurance, and MG Insurance. They were found to have improperly underpaid insurance claims for depreciation losses caused by car accidents during the Financial Supervisory Service's partial inspections and were fined accordingly.

According to automobile insurance terms, if the repair cost from an accident exceeds 20% of the vehicle's value immediately before the accident for cars less than five years old after delivery, the depreciation loss is subject to compensation.

AXA General Insurance failed to pay 55 million KRW for 44 contracts, while MG Insurance and Heungkuk Fire & Marine Insurance reduced payments by 7 million KRW and 6 million KRW for 27 and 25 contracts, respectively. Consequently, the financial supervisory authority imposed fines of 8 million KRW on AXA General Insurance, 6 million KRW on MG Insurance, and 4 million KRW on Heungkuk Fire & Marine Insurance.

Financial Services Commission

During the deliberation of these sanctions, a Financial Services Commission member objected, stating, "AXA General Insurance's failure to pay insurance claims is a serious offense, but the fine is relatively low compared to the scale of damages," and added, "The other two insurers paid less in claims but received fines similar in amount, which is unfair."

Samsung Fire & Marine Insurance and KB Insurance were also fined 153 million KRW and 138 million KRW, respectively, for violating disclosure obligations by omitting exemption clauses in product explanation scripts while soliciting dental insurance contracts via telemarketing (TM). However, the number of violations detected was 889 and 683 cases, showing a significant discrepancy with the fines imposed.

Another Financial Services Commission member pointed out, "There is an imbalance in the criteria used to calculate fines. There are parts that assess intentionality and parts that consider the economic impact on society, but in this case, the assessment of economic impact and intentionality is unbalanced."

In response, financial authorities acknowledged issues with the current fine imposition system and expressed their intention to improve it. A financial authority official stated, "The current fine system is based on earned premiums," adding, "There is a problem where fines are excessively calculated when small amounts of claims are unpaid, and conversely, fines are low even when large amounts of claims are unpaid," indicating plans for system improvement.

According to the Insurance Business Act, fines are imposed based on annual earned premiums. For example, if there is a violation of the obligation to comply with basic document entries, a fine of up to 50% of the annual earned premiums of the relevant insurance contracts can be imposed, with adjustments made based on intentionality or negligence.

A financial authority official said, "All related agencies agree with the concerns raised by the commission members," and added, "We plan to promptly pursue amendments to the Insurance Business Act."

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