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

Comprehensive Inspections Revived... Insurance Companies on Edge
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 targeted the insurance industry, stepping down, there is confusion about how to approach this year's inspections.

The financial supervisory authorities have stated that they will not cancel the planned comprehensive inspections, but there are expectations that the inspection and sanction levels could vary significantly depending on the tendencies of the incoming 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. This advance notice was given one month prior to the inspection in accordance with the revised "Regulations on Inspection and Sanctions of Financial Institutions" amended last year, allowing 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.

[Image source=Yonhap News]

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

Samsung Life Sanctions Finalized... Stalled for 5 Months

The insurance industry is paying as much attention to the post-inspection handling direction as to the comprehensive inspections themselves. The recent stalemate over the heavy sanctions against Samsung Life also originated from the comprehensive inspection conducted in 2019.

In December last year, Samsung Life received an 'institutional warning,' a heavy sanction, at the disciplinary committee meeting due to non-payment of cancer insurance hospitalization fees for long-term care 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 pay cut and reprimands for the relevant executives and employees.

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

Samsung Life recently won a lawsuit at the Supreme Court regarding the non-payment of cancer insurance hospitalization fees for long-term care hospitals, and differing conclusions based on judgments have strengthened voices that the sanctions were excessive, which is interpreted as a reason for the delayed final decision.

The conflict between the FSS and the insurance industry has escalated into legal battles, with the immediate annuity underpayment issue being 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 eventually led to litigation.

Even if the FSC finalizes sanctions, there is concern that the issue will continue into lawsuits, fueling arguments that the sanctions are ineffective.

In 2015, former FSS governor Jin Woong-seop announced plans to phase out comprehensive inspections by 2017. The policy was to move away from the past method of blocking all illegal acts by financial companies through inspections and instead detect only problematic areas through a continuous monitoring system.

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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