Yoon Seok-heon Leaves Financial Supervisory Service... Insurers Ask, "Will There Be a Comprehensive Inspection?"

Reviving Comprehensive Inspections and Leaving
Will Sanction Levels Vary Depending on Successor?

Yoon Seok-heon, Governor of the Financial Supervisory Service, is attending the 'Real Estate Market Inspection Meeting of Related Ministers' held at the Government Seoul Office in Jongno-gu, Seoul on the 6th. Photo by Kim Hyun-min kimhyun81@

[Asia Economy Reporter Oh Hyung-gil] The atmosphere among insurance companies facing comprehensive inspections this year is complicated. With Yoon Seok-heon, the Financial Supervisory Service (FSS) governor who revived comprehensive inspections and took a tough stance on the insurance industry, stepping down, there is confusion about how to approach this year's inspections. While the financial supervisory authorities have stated they will not cancel the planned comprehensive inspections, there is speculation that the intensity of inspections and sanctions could vary significantly depending on the tendencies of the new FSS governor.

According to the insurance industry on the 7th, NH Nonghyup Life Insurance is the first insurer to undergo a comprehensive inspection this year. The financial authorities recently notified Nonghyup Life that a preliminary inspection will begin on the 20th of this month, followed by the main inspection starting on the 21st of next month. In accordance with the revised "Regulations on Inspection and Sanctions of Financial Institutions" amended last year, the inspection was notified one month in advance to allow sufficient preparation for the comprehensive inspection.

This inspection is expected to focus on risk management. Since Nonghyup Life suffered losses exceeding 200 billion KRW in 2018 due to increased hedging costs on foreign currency assets, impairment losses on equity-type assets, and sales losses, the plan is to assess the soundness management status.

Samsung Fire & Marine Insurance is also scheduled for a comprehensive inspection soon, and Dongyang Life Insurance and KB Insurance are also considered inspection targets this year. The FSS had initially announced a total of four comprehensive inspections for insurance companies this year.

The insurance industry is paying as much attention to the post-inspection handling direction as to the comprehensive inspections themselves. The recent heavy sanctions against Samsung Life Insurance, which have fallen into uncertainty, also originated from the comprehensive inspection conducted in 2019.

[Image source=Yonhap News]

In December last year, Samsung Life Insurance received an "institutional warning," a heavy sanction, at the Sanctions Review Committee for non-payment of cancer insurance hospitalization fees at convalescent hospitals and violations related to transactions with major shareholders. The FSS recommended fines and penalties to the Financial Services Commission (FSC) and took measures such as a three-month salary reduction and reprimands for the relevant executives and employees.

However, the controversy continues as the FSC has not finalized the sanction level for over five months. Although the delay is reportedly due to major issues such as the Lime scandal, there is a growing perception that the FSC might be reconsidering the sanctions from scratch.

There is an interpretation that the final decision is delayed because voices supporting the view that the sanctions were excessive have gained strength, especially as Samsung Life recently won a lawsuit at the Supreme Court regarding non-payment of cancer insurance hospitalization fees at convalescent hospitals, leading to differing conclusions depending on the judgment.

The conflict between the FSS and the insurance industry escalating into legal battles over the issue of underpayment of immediate annuities is also a prime example of excessive sanctions. Governor Yoon clashed head-on with the insurance industry early in his tenure in 2018 by demanding lump-sum payments for immediate annuities, but the matter ultimately proceeded to litigation. Even if the FSC finalizes sanctions, there is concern that it will lead to lawsuits, fueling arguments that the sanctions are ineffective.

An insurance industry official said, "While Governor Yoon strengthened consumer protection during his term, it is true that excessive interference in sales activities and management occurred," adding, "There are also discussions about whether it is appropriate to continue the revived comprehensive inspections depending on Governor Yoon's intentions."

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