Insurance Companies' Financial Fraud Amounts to 60 Billion Won Over 4 Years... Internal Controls Lacking

Most Insurance Agents and Employees Illegally Skim Premiums During Sales Process

[Asia Economy Reporter Oh Hyung-gil] It has been revealed that an insurance planner affiliated with Samsung Life Insurance embezzled customer insurance premiums amounting to 400 million KRW over seven years. Planner A was caught using the premiums received from customers personally without paying them to the company from April 2010 to June 2017. The embezzled amount totaled approximately 421.42 million KRW.

A visited customers to collect premiums in cash and exploited a universal product that maintains the contract even if premiums are not paid for a certain period, making it difficult for customers to detect the embezzlement in advance. Samsung Life Insurance is restoring customer damages to their original state and is proceeding with recovery procedures, including claiming subrogation rights against A.

The scale of financial accidents occurring within insurance companies has been estimated to reach 60 billion KRW over the past four years. The chronic causes of these financial accidents are pointed out as the moral hazard leading to misconduct by insurance company employees or affiliated planners and the failure of internal controls to detect such issues early.

According to the Financial Supervisory Service on the 6th, the amount of financial accident damages in insurance companies from 2017 to last year was 11.6 billion KRW for life insurance and 43.8 billion KRW for non-life insurance, totaling 55.4 billion KRW.

In recent years, the trend of financial accidents in insurance companies has been on the rise. After the 310 billion KRW financial accident caused by Dongyang Life Insurance's poor meat-collateralized loans in 2016, the damage amount decreased to 3.5 billion KRW in both life and non-life insurance in 2018. However, damages continued with 26.2 billion KRW in 2019 and 14.3 billion KRW in 2020.

[Image source=Yonhap News]

Fraudulent Contract Recruitment Commission Embezzlement
Changing Contract Holders and Policy Loans

Looking at major cases, most involve illegal activities during sales processes. In August last year, it was revealed that the head of Chubb Life Insurance led the creation of fake contracts from September 2016 to April 2018, embezzling approximately 900 million KRW in recruitment commissions. Chubb Life also suffered a loss of 300 million KRW in July due to false contracts by a corporate agency (GA).

KB Insurance also caught a planner who, from 2017 to last year, arbitrarily changed contract holders without their consent and took out policy loans, embezzling 353 million KRW.

In 2019, Mirae Asset Life confirmed that a GA representative who signed sales contracts did not actually conduct sales but embezzled 300 million KRW in commissions through false contracts, leading to strengthened internal controls related to GA partnerships. NH Nonghyup Life also experienced damages of 536 million KRW caused by a local Nonghyup employee using copies of customer IDs to take insurance contract loans and early withdrawals, filing a lawsuit against the local Nonghyup for damages and winning partially.

Although not leading to financial accidents, numerous illegal recruitment activities led by planners have recently been detected. The Financial Supervisory Service recently imposed sanctions such as registration cancellation or up to 180 days of business suspension on 26 current and former insurance planners from major insurance companies and insurance agencies caught in insurance fraud.

The problem is that among these financial accidents, cases where the actual damage amount was recovered are rare. Since detection of illegal activities is often delayed, the embezzled money is either already spent or secretly diverted beforehand. This is why there are criticisms that institutional measures to detect financial accidents early in the sales field are insufficient.

An insurance industry official said, "Since planners directly manage customers based on personal relationships, it is difficult for third parties to verify or detect issues," adding, "With the economic downturn reducing planners' income, it seems they are more susceptible to temptations of insurance fraud or misconduct."

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