Is Selling GA the End?…Reigniting the Controversy Over Liability for Incomplete Sales Compensation

65 Large GAs Withdraw 350,000 Contracts
False Contracts and Unfair Transfers... Incomplete Sales Rampant
Lee Jae-myung's Pledge: "Insurance Companies and GAs Responsible for Sales"
GA Industry: "Is Acting as Insurance Company Agent a Crime?"

[Asia Economy Reporter Oh Hyung-gil] Discussions have resurfaced on requiring corporate agencies (GAs) specializing in insurance sales to compensate consumers if they cause harm through incomplete sales. The aim is to clearly establish responsibility for sales and eradicate incomplete sales.

The GA industry argues that since they sell on behalf of insurance companies, the direct responsibility lies with the insurers, expressing practical difficulties regarding compensation.

According to the integrated disclosure of corporate insurance agencies on the 13th, the number of insurance policy cancellations by 65 large GAs with more than 500 affiliated planners until the first half of last year reached 127,480 for life insurance and 221,425 for non-life insurance, totaling nearly 350,000 cases.

This accounts for 88% of the 397,559 cases recorded in the previous year, achieved in just the first half. The number of cancellations refers to cases where customers requested policy withdrawal among new contracts, indicating a decline in customer satisfaction with insurance products sold by GAs.

Additionally, the average incomplete sales rate for GAs was 0.20% for life insurance and 0.02% for non-life insurance. While similar to the 0.03% rate of non-life insurers during the same period, it was significantly higher than the 0.12% incomplete sales rate of life insurers.

GAs have the advantage of comparing and selling products from multiple insurers, but frequent turnover of planners and a "sell and forget" atmosphere have been criticized for fostering incomplete sales. The Financial Supervisory Service's inspections annually uncover issues such as false contract creation, improper contract transfers, and violations of disclosure obligations.

In particular, the practice of not compensating consumers for damages caused by incomplete sales has become entrenched. Under the current Financial Consumer Protection Act, if a GA commits incomplete sales, the insurer is primarily liable for damages and then deducts the compensation amount in advance or in installments from the total recruitment commission paid to the GA before paying the remainder.

Although the structure requires insurers to compensate first and then seek reimbursement from GAs, it is pointed out that exercising the right of recourse is practically difficult. This is because it is not easy to demand compensation from GAs who need to maintain sales contracts in the future. Ultimately, the cost burden falls on the insurers.

Jeong Eun-bo, Governor of the Financial Supervisory Service, is attending the 'Life Insurance CEO Meeting' held on the 25th at the Millennium Hilton Seoul Hotel in Jung-gu, Seoul, and is taking photos with representatives of life insurance companies. Photo by Kang Jin-hyung aymsdream@

GA Compensation Liability Amendment Proposed but Pending

The insurance industry has continuously called for a GA sales responsibility system. It is reported that during a meeting last year between Financial Supervisory Service Governor Jung Eun-bo and CEOs of non-life insurance companies, opinions were expressed on the need to strengthen GA sales responsibility measures.

Accordingly, in July 2020, Yoon Chang-hyun, a member of the People Power Party, proposed an amendment to the Financial Consumer Protection Act to assign primary compensation responsibility for consumer damages to large GAs, but it remains pending.

However, recently, Lee Jae-myung, the Democratic Party presidential candidate, proposed a pledge to have large GAs and insurers jointly bear primary responsibility for incomplete insurance sales, raising expectations within the insurance industry for the introduction of a GA sales responsibility system.

On the other hand, GAs strongly oppose, arguing that they are forced to engage in excessive sales due to following insurers' sales policies, which leads to incomplete sales. They also claim that compensation liability is excessive given that many GAs are financially weaker than insurers.

Kim Dong-gyeom, a research fellow at the Korea Insurance Research Institute, said, "GAs, which contract with multiple insurers, are not under the command and supervision of insurers, nor are they in an equal or superior position, making it practically impossible for insurers to control them," adding, "To secure compensation capability, improvement measures such as increasing sales guarantee deposits should be prepared."

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