Recruitment wars heat up before July's 1200% rule for general agencies

GA firms exploit 13th- and 25th-installment incentives to skirt commission limits

Settlement bonuses surge as agencies race to lock in agents before new regime takes effect

Pressure on transferred agents fuels improper policy-switching, harming customers

FSS to prioritize on-site inspections of suspect GAs and tighten institutional sanctions

With the expansion of the "GA 1200% rule" set for July and a commission installment regime due next year, large general insurance agencies are locked in an intensifying battle to recruit agents. Settlement bonuses are rising sharply, and moves to circumvent regulations — including the use of 13th- and 25th-installment incentives — are emerging. [Getty Images Bank]
With the expansion of the "GA 1200% rule" set for July and a commission installment regime due next year, large general insurance agencies are locked in an intensifying battle to recruit agents. Settlement bonuses are rising sharply, and moves to circumvent regulations — including the use of 13th- and 25th-installment incentives — are emerging. [Getty Images Bank]

# One large general insurance agency brought in a loan company to recruit agents who could not obtain surety insurance. Settlement bonuses are normally secured through surety insurance — agents must repay them if they leave early or fail to meet performance targets — but this agency arranged high-interest loans through a lender instead, requiring departing agents to repay the debt. The scheme channels agents in through off-the-books money that falls outside regulatory limits, then drives them into a performance race while they remain trapped by debt.

# Another large general agency poached life insurance company division heads and branch managers along with their entire sales teams. One insurer's employee was offered 1 billion won (about $662,000) — structured as 250 million won up front, 500 million won over the first two years and 250 million won over years three and four — on the condition that the subordinate organization defect as a unit. Insurers stripped of their entire sales base responded by offering even larger sums to retain staff, turning the standoff into a bleeding contest that inflates operating costs on both sides.

Large general agencies are in an uproar ahead of the "GA 1200% rule," which caps first-year commissions for agents, and the installment-based commission regime that will spread payments over multiple years. Firms are flooding the market with illicit recruitment tactics and regulatory workarounds in a rush to lock in high payouts before the new rules take effect.

Analysts warn that aggressive poaching translates into performance pressure on newly transferred agents, which in turn drives improper policy-switching — replacing valid contracts to generate new sales — ultimately deepening consumer harm.

'Last chance' frenzy: slicing up incentives, pouring money into recruitment

At the center of the overheated recruitment competition, according to industry sources Wednesday, is the "GA 1200% rule" taking effect in July. The rule caps the total first-year compensation a general agency agent may receive — combining recruitment commissions, performance incentives and settlement bonuses — at 12 times the monthly premium on a sold policy. The limit has applied to captive agents at insurers since 2020, but GA agents, who have long enjoyed higher commissions, will come under the same ceiling for the first time in July.

In January next year, a commission installment regime will begin, spreading first-year lump-sum payments over four years; by 2029, the installment period will extend to seven years. The measures aim to curb the short-term performance race fueled by large first-year commissions and the incomplete sales and early policy cancellations that come with it.

The problem lies in how general agencies are calculating their moves before the rules tighten. Because GAs have no products of their own and run entirely on commissions from selling policies across multiple insurers, agent headcount is directly equivalent to sales. Once the commission ceiling equalizes, the competitive edge GAs have long held over captive agents — higher pay — disappears, and once payments are stretched out over years, agents will have far less incentive to switch firms. That calculus is driving agencies to pour resources into recruitment now, while they still can.

Three main workaround channels have emerged.

The first is the "13th-installment incentive." Rather than touching the first-year commission cap under the 1200% rule, GAs are tapping the 13th-installment bonus — an additional incentive insurers pay when a policy stays in force for more than a year. A GA advances a large incentive payment to its agent the month after a policy is sold, then later recovers that amount from the insurer under the 13th-installment label. The result: agents pocket more than 1,200% of the monthly premium in their first year, and the GA pockets the margin. The scheme exploits a timing gap between when the regulation applies to insurers and when it applies to GAs.

The second is the "25th-installment incentive." Some large GAs are pressuring insurers to create or increase a 25th-installment bonus — payable in the third year — but only for policies sold before the new regime takes effect this year. The demands run to 150 to 200 percent of new contract performance, and when added to existing first- and second-year commissions totaling 1,850%, total compensation would exceed 2,000%. This is the direct opposite of the installment regime's intent to spread payments out; it is a mechanism for front-loading extra money onto pre-reform contracts. One agency head reportedly told an insurer that whether it creates a 25th-installment incentive would determine which insurer the agency prioritizes next year, and indicated the proceeds would be distributed as dividends to branch managers.

The third channel is improper recruitment driven by inflated settlement bonuses. Recruiters are spreading the message that agents will no longer be able to command high pay once the new rules kick in, stoking job-switching. The loan-company scheme and the mass defection of life insurer sales organizations described earlier are prime examples. One large GA ran a promotion from the moment the commission overhaul was announced, offering between 10 million won and 400 million won to anyone who brought in agents from rival firms. Another GA lent company funds to a branch manager and disguised the arrangement as a private financial transaction, allowing the money to be used to recruit experienced agents.

To evade regulatory scrutiny and inter-company disputes, the support methods are becoming increasingly covert — taking the form of loans through lenders, disguised private lending and the provision of car leases.

Lax branch oversight fuels the frenzy — regulators take aim

Weak internal controls at general agencies have helped illicit practices spread industry-wide. Branch-type GAs — where subsidiaries and branches operate as independent profit centers with loose ties to the head office — are particularly difficult to supervise at the front-line sales level. The Financial Supervisory Service's internal control assessment of large GAs released last November found that 47.1% of branch-type GAs fell into the weak or high-risk categories (grades 4 to 5), far exceeding the rates for subsidiary-type GAs (20%) and owner-operated GAs (13.6%).

Settlement bonuses are in practice rising fast. In the first quarter of this year, the combined settlement bonuses paid by the top four GAs reached 34.2 billion won, up 7.4% from a year earlier, with Inca Financial Services (up 87.4%) and Global Financial Sales (up 49.1%) posting the sharpest increases. Global Financial Sales is a representative branch-type GA. Over the same period, complaints about improper policy-switching jumped 54% to 211 cases in the first quarter, up from 137 cases the previous quarter.

Financial regulators have not been idle. The Financial Supervisory Service earlier published the results of its GA internal control assessment and signaled it would step up inspections and sanctions. Last July it released the findings of an examination of seven large GAs that had distributed excessive settlement bonuses: 408 agents had improperly replaced 3,583 existing policies that lapsed within six months, with 43.1% of those improper switches occurring within 180 days of an agent joining a new GA. The pattern indicates agents were churning policies to meet performance targets, not because customers needed new coverage. In January this year, as it finalized the commission overhaul, the FSS also issued a pre-legislative notice of amendments to the Insurance Business Act enforcement decree and supervisory regulations that would require head offices to directly oversee their branches.

With the 1200% rule's effective date now imminent, regulators are tightening their grip further. The FSS plans to monitor the market closely through a task force on the settlement of the new sales commission regime, and will move immediately to conduct on-site inspections of any GA found to be paying excessive settlement bonuses or accumulating a high volume of suspected improper policy-switching contracts. The FSS also intends to shift the weight of sanctions from individual agents to institutions — GAs and insurers — to hold management directly accountable, and in the second half of the year will publish comparative data on policy-switching rates by company, channel and product to let the market self-correct.

"The intent of spreading commissions over time is being hollowed out by irregular incentive schemes before the system even takes effect," an insurance industry official said. "Unless the industry shifts its sales practices away from excessive cost competition and toward long-term policy maintenance, consumers and the market as a whole will ultimately bear the cost."


psj@heraldcorp.com