Lee Jae-myung "GA, Joint Liability for Consumer Damage"... Compensation Responsibility Controversy Rekindled (Comprehensive)

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?"

[Image source=Yonhap News]

[Asia Economy Reporter Oh Hyung-gil] Discussions have resurfaced on requiring corporate agencies (GA) 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 reached 127,480 for life insurance and 221,425 for non-life insurance in the first half of last year, totaling nearly 350,000 cases.

This accounts for 88% of the previous year's 397,559 cases, recorded 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 led to incomplete sales. The Financial Supervisory Service's inspections annually uncover false contract creation, improper contract transfers, and violations of explanation obligations.

In particular, a 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 deducts the compensation amount from the total recruitment commission paid to the GA, either in advance or in installments, before paying the remainder.

This structure requires insurers to compensate first and then seek reimbursement from GAs, but it is pointed out that exercising subrogation rights is practically difficult. It is not easy to demand compensation from GAs who must maintain sales contracts going forward. Ultimately, the cost burden falls on insurers.

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 Jeong Eun-bo and CEOs of non-life insurers, there was consensus on the need to strengthen GA sales responsibility.

Accordingly, in July 2020, Rep. Yoon Chang-hyun 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 make 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 7th, Lee Jae-myung's Democratic Party presidential campaign committee announced its first financial sector pledge, promising to alleviate insurance consumers' burdens, guarantee insurance payments, and protect consumers at the sales stage.

This pledge includes ▲ alleviating disclosure obligations ▲ strengthening sales responsibility of independent insurance agencies (GA) ▲ granting binding effect to financial dispute mediation decisions ▲ simplifying the claims process for actual loss insurance ▲ establishing online platform financial consumer protection guidelines and enhancing legal responsibilities.

However, GAs strongly oppose, arguing that they are forced into aggressive sales following insurers' sales policies, which leads to incomplete sales. They also claim that since many GAs are financially weaker than insurers, the compensation liability is excessive.

Kim Dong-gyeom, a research fellow at the Korea Insurance Research Institute, said, "GAs contracting with multiple insurers are not under the insurers' command and supervision, nor do they hold equal or superior status, making it practically impossible for insurers to control them," adding, "To secure compensation capability, measures such as increasing sales guarantee deposits should be devised."

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