"Increase in Insurance Disputes, Low-Trust Insurers Must Strive for Recovery"

Source: Korea Institute of Finance

[Asia Economy Reporter Changhwan Lee] Among various financial companies in Korea, insurance companies have the lowest level of trust, prompting an analysis that insurance companies need to take more proactive measures to improve consumer trust.

According to the report "Current Status and Improvement Tasks of Consumer Trust in Korea's Insurance Industry" by the Korea Institute of Finance on the 1st, out of 90,334 financial complaints received by the Financial Supervisory Service last year, 53,294 complaints (59%) were related to the insurance sector. Among insurance companies, non-life insurance accounted for 35.6%, and life insurance for 23.4%.

The number of complaints against insurance companies is on the rise. Looking at insurance complaints by type, life insurance complaints were 52.6% related to insurance solicitation and 17.5% related to insurance claim calculation and payment. For non-life insurance, 44.2% were related to insurance claim calculation and payment, followed by 9.8% related to contract establishment and termination.

The overall trust level in the insurance industry was also relatively low. According to a survey on trust in financial companies targeting domestic financial consumers, the trust scores for life insurance companies (48.09) and non-life insurance companies (48.97) were lower compared to banks (63.08) and securities companies (51.21).

The report analyzed that the low consumer trust in the insurance industry is largely due to inherent limitations of the sector. Fundamentally, there is a high possibility that the interpretation of insurance contracts differs between insurance companies and policyholders, and the information asymmetry is significant, making the insurance industry prone to disputes. Additionally, insurance contracts may be concluded in a way that is disadvantageous to consumers due to insurance companies’ pursuit of profits.

Nevertheless, it pointed out that the trust level in Korea’s insurance industry is lower compared to other countries. The report revealed that among 30 major countries analyzed for consumer trust in the insurance industry, Korea ranked near the bottom.

This was attributed mainly to insurance companies’ short-term performance orientation and rigid organizational culture. The report noted that insurance companies, driven by performance competition, lack essential efforts to build consumer trust.

The vertical integration strategies of insurance companies and the instrumentalization of agents were also cited as limitations. While the sales model represented by insurance planners has driven growth in Korea’s insurance industry, it has revealed shortcomings such as lack of expertise and incomplete sales.

The report proposed several tasks to improve consumer trust in Korea’s insurance industry. First, it recommended that insurance companies improve the Management Evaluation System (RAAS) as part of managing reputation risk. Specific measures included quantifying reputation risk, setting reputation ratings based on external evaluations, and practically reflecting reputation results in RAAS ratings.

It also argued for strengthening the self-regulation of insurance policy terms. It added that the standard insurance policy terms currently drafted by the Financial Supervisory Service should be handled by autonomous organizations such as the Life Insurance Association or the Non-Life Insurance Association. This approach would secure autonomy and flexibility for insurance companies while imposing greater responsibility for negligence.

From the sales channel perspective, the report emphasized strengthening self-regulation related to GA (General Agency) channels and the need to activate insurance sales platforms that have advantages not possessed by existing sales channels.

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