Authorities Push Ahead with 'GA Opposition' Fee Reform... "Expansion of Tiered Fees and Information Disclosure, a Global Trend"

'Insurance Sales Commission Reform Plan Briefing' Held
Insurance Policy Retention Rate Up to 35 Percentage Points Lower Than Advanced Countries
GA Urges Authorities to Reflect Field Opinions

Financial authorities announced on the 31st that since Korea's insurance policy retention rate is 15 to 35 percentage points lower than that of advanced countries, the sales commission system must be reformed. They declared their intention to push forward with expanding the split payment of sales commissions, which corporate insurance agencies (GA) strongly opposed, applying the '1200% rule' to GA-affiliated agents, and expanding disclosure of sales commission information.

Kim So-young, Vice Chairman of the Financial Services Commission, is speaking at the 5th Insurance Reform Meeting held on December 16 last year at the Government Seoul Office in Jongno-gu, Seoul. Photo by Yonhap News

On the same day, the Financial Services Commission and the Financial Supervisory Service held an "Insurance Sales Commission Reform Plan Briefing" at the Banking Hall in Jung-gu, Seoul, explaining the necessity and purpose of the reform plan. About 180 people attended the briefing, including representatives from around 70 insurance companies and GAs, life insurance, non-life insurance, GA associations, and financial and insurance research institutes.

At the briefing, the financial and insurance research institutes and authorities pointed out that the longer the insurance contract period, the lower the contract retention rate. They emphasized that since advanced countries also apply sales commission disclosure and split payment systems, Korea should promptly implement the reform plan.

The retention rates for life insurance companies by contract term were 80.7% at the 13th term (1 year), 63.2% at the 25th term (2 years), 56.1% at the 37th term (3 years), and 40% at the 61st term (5 years). For non-life insurance companies, the rates were 87% at the 13th term, 72.4% at the 25th term, 62.5% at the 37th term, and 42.7% at the 61st term. These figures are 15 to 35 percentage points lower compared to major advanced countries. A lower insurance policy retention rate means more policy cancellations and lower consumer trust in sellers.

The financial and insurance research institutes diagnosed that consumer aversion to recruitment commissions is high, and sellers show negligence in contract maintenance management, leading to increasing negative evaluations of the insurance industry. They particularly pointed out that after the introduction of the new International Financial Reporting Standard (IFRS17), excessive advance payment of sales commissions has become widespread, causing unfair practices, frequent agent turnover, and other unhealthy sales behaviors. They argued that excessive commission competition leads to premium increases and undermines insurers' soundness, thus necessitating reform of the current sales commission system.

They also presented regulations and commission disclosure systems for insurance sales in the United States, Australia, and Japan. In the United States (New York State), limits are set on advance payment commissions (years 1 to 4), and sales commissions received from insurers are disclosed to policyholders. Japan reflects consumer protection indicators when calculating sales commissions and imposes disclosure obligations on financial service intermediaries. Australia increases the proportion of split payments for sales commissions and prohibits proportional commission payments based on sales volume. It also requires disclosure of commissions that recruitment personnel may receive in product brochures.

The Financial Services Commission and Financial Supervisory Service explained that the International Association of Insurance Supervisors (IAIS) also specifies the need for disclosure of remuneration structures, and major countries have supervisory systems aligned with this principle. They conveyed that since reforming the commission system is a global trend, it should be introduced quickly.

Participants from insurance companies and GAs also presented opinions regarding the sales commission reform plan. GAs opposed the split payment of commissions, arguing that it would increase losses for agents. They claimed that fixed costs such as rent, operating expenses, and training costs should be separately excluded when applying the 1200% rule. The 1200% rule limits the sales commission (including incentives) that insurers can pay agents in the first year of an insurance contract to within 12 times the monthly premium, as a measure to prevent excessive commission competition.

GAs also voted against the policy of disclosing sales commissions. At the same time, they urged the authorities to reflect various field opinions related to the reform plan. Insurance companies proposed measures for a smooth transition of the system improvement.

An official from the authorities said, "Considering the opinions raised at the briefing, a practical task force (TF) will discuss the detailed contents of the sales commission reform plan," adding, "We plan to finalize and announce the sales commission reform plan after holding an additional briefing next month."

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