FSS Watching Variable Insurance Sales... Shinhan Life and KB Life Subsidiary Rated 'Insufficient'

FSS Conducts Three-Month Mystery Shopping of Variable Insurance Sales
Shinhan Life and KB Life Partners Rated "Insufficient" Among Nine Firms; Improvement Plans to Be Guided
Focus on Preventing Misselling to Avert "Second ELS Incident"

The Financial Supervisory Service conducted a three-month "mystery shopping" (undercover audit) targeting nine life insurance companies and subsidiary-type corporate general agencies (GAs) regarding variable insurance sales. As a result, the sales procedures of Shinhan Life and KB Life Partners were found to be "insufficient." The Financial Supervisory Service plans to guide these companies in formulating improvement plans and will closely monitor their implementation status to prevent consumer harm.

Headquarters of the Financial Supervisory Service in Yeouido, Seoul. Financial Supervisory Service

On March 24, the Financial Supervisory Service announced that it had evaluated the variable insurance sales systems of seven life insurers and two subsidiary-type GAs over a three-month period beginning in September of last year. Shinhan Life and KB Life Partners, a subsidiary-type GA of KB Life, were rated as having "insufficient" sales procedures.

The Financial Supervisory Service undertook this undercover audit out of concern that competition among life insurers over variable insurance sales had become overheated last year. In fact, the initial premiums for variable insurance in the previous year soared to 2.89 trillion won, representing a 46.2% increase compared to the year before. Given the nature of variable insurance, which uses stock indices and other assets as its underlying base, the Financial Supervisory Service believes that inadequate sales procedures can easily lead to "misselling"—where products do not match the customer’s objectives or investment profile. The possibility that insurance payouts or surrender values may decrease if stock prices fall was also identified as a significant risk factor.

Previously, on March 20, the Financial Supervisory Service convened the "1st Consumer Risk Response Council" under the leadership of Director Lee Chanjin to discuss the risks associated with the surge in sales of stock-linked products such as variable insurance. The agency noted that the recent rapid rise in variable insurance sales through banks could potentially develop into a situation similar to the controversial "Hong Kong H Index (Hang Seng China Enterprises Index, HSCEI) ELS incident" of the past, and stated its intention to closely monitor sales trends and business practices.

The undercover audit was conducted by external agency investigators who posed as customers and consulted with insurance planners regarding variable insurance enrollment. The evaluation was based on five categories and 24 items: suitability principle, duty of explanation, notification/guidance, additional points, and deductions. Additional points were awarded for thorough explanations of required items, while omissions resulted in deductions.

According to the assessment, five companies—Samsung Life, Hana Life, Kyobo Life, KDB Life, and ABL Life—received "excellent" ratings. Mirae Asset Financial Services received a "good" rating, and MetLife was rated as "average." In contrast, Shinhan Life and KB Life Partners were found to be "insufficient." The evaluation criteria classified scores as follows: 90 points or above out of 100 is "excellent," 80 or above is "good," 70 or above is "average," and 60 to under 70 is considered "insufficient."

The Financial Supervisory Service explained that, overall, four of the five evaluation categories—including the suitability principle and duty of explanation—were rated as either "excellent" or "good." Most companies complied with the suitability principle and provided adequate explanations regarding the structure and investment risks of variable insurance in accordance with legal requirements.

However, explanations concerning the asset management methods of variable insurance and the "illegal contract termination right" under the Financial Consumer Protection Act were relatively lacking. The illegal contract termination right allows consumers to demand contract termination if the financial product seller or advisor violates the suitability or appropriateness principles, or the duty of explanation, when entering into the contract.

The Financial Supervisory Service advised consumers that: (1) principal is not guaranteed, and insurance payouts or surrender values may be lower than expected; (2) it is important to select a product type (such as savings-type, protection-type, or annuity-type) that matches one's objectives and investment profile; (3) the results of the suitability assessment must be verified before enrollment; and (4) the fund switching feature should be utilized to cope with market volatility.

Additionally, the Financial Supervisory Service announced that it would strengthen monitoring of improper business practices, including excessive sales competition driven by rising stock markets.

An official from the Financial Supervisory Service stated, "We will closely monitor excessive sales competition that takes advantage of stock market rallies. For companies rated as insufficient, we will guide them in establishing improvement plans, and for insurers with large sales volumes, we will conduct meetings to encourage reinforcement of sales procedures, ensuring the highest level of consumer protection."

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