Insurance Agencies to Face Fines Instead of Business Suspension... Accelerating Measures in the Second Half of the Year

Minority Agents' Incomplete Sales Cause Widespread Damage
Calls to Strengthen Consumer Protection 'Internal Control Standards'

[Asia Economy Reporter Oh Hyung-gil] A system improvement that requires insurance general agencies (GAs) violating recruitment order to pay fines instead of suspension of business will be implemented by the end of the year. This is to prevent the damage where other honest agents cannot sell insurance due to the incomplete sales of some agents.

There is a call to strengthen internal control standards that GAs can self-regulate amid increasing consumer damage caused by unsound business practices.

According to the insurance industry on the 25th, financial authorities plan to prepare a plan to introduce fines as an alternative to business suspension in the second half of the year. A financial authority official said, "Fines as an alternative to business suspension have already been introduced in the Capital Markets Act, Financial Consumer Protection Act, Specialized Credit Finance Business Act, and Electronic Financial Transactions Act," adding, "However, for agents who are not employed and salaried, detailed standards will be created considering the effect of fines and the income part of the agents."

GAs that have been suspended from business due to violations of the Insurance Business Act have long appealed that the damage caused by business suspension is significant. According to the minutes of the 11th regular meeting of the Financial Services Commission recently disclosed, Global Financial Sales, which was sanctioned with a 30-day suspension of new life insurance contract recruitment due to false contracts, also expressed concerns that business suspension could cause operational difficulties and excessive damage to agents.

In the case of Global Financial Sales, among more than 10,300 affiliated agents, 35 agents recruited insurance contracts by forging customer names, and 42 agents forged other agents' names to conclude contracts and collect commissions. Additionally, 32 agents were caught providing special benefits. Such violations by a small number of agents cause significant damage to the rest of the agents by halting sales.

A representative of Global Financial Sales pointed out, "When a 30-day suspension is imposed, an additional income reduction of 660,000 KRW per agent is expected, which corresponds to one-third of the average income of agents," adding, "For 1,241 agents who can only recruit life insurance, income will be almost nonexistent, which is a big difference compared to general financial institutions where employees' income does not decrease even if the institution is suspended."

In the first half of the year, there were calls to protect agents from damage even when large GA Leaders Financial Sales received a 60-day suspension of life insurance sales.

However, as the influence of GAs grows in the insurance industry, there are also urgent calls to establish internal control standards that can suppress unsound business practices. Many GAs are criticized for having weak control functions over illegal acts by branches or executives because headquarters only perform compliance monitoring without actual sanction authority.

Kim Dong-gyeom, a research fellow at the Korea Insurance Research Institute, said, "Large GAs operate internal control systems according to the Insurance Business Act, but illegal acts by some GAs are damaging the recruitment market order," and suggested, "To secure compensation liability for incomplete sales by GAs, the business guarantee deposit system should be made more realistic, or insurance companies and commission recovery regulations should be revised to reduce incentives for incomplete sales."

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