Standalone design requirement waived; 50% premium discount for 3 years

New actuarial assumption report, GA operational risk assessment also introduced

[Financial Services Commission]
[Financial Services Commission]

Product design regulations will be eased to allow holders of first- and second-generation indemnity insurance policies to switch to fifth-generation coverage while keeping their existing main contracts intact.

The Financial Services Commission announced Friday that it has drafted an amendment to the Insurance Business Supervision Regulation incorporating these changes and will accept public comments through Sept. 21.

Under current rules, indemnity insurance must in principle be sold as a standalone product. However, given that a large share of existing first- and second-generation policies were taken out as riders attached to other insurance products, the FSC decided to exempt policyholders using the contract-conversion discount regime from the standalone design requirement.

As a result, holders will be able to add fifth-generation indemnity coverage as a rider while keeping their existing main contract unchanged. The measure applies to first- and second-generation policyholders who signed up before March 2013 and whose contracts carry no re-enrollment conditions. Those who switch to the fifth generation will receive a 50 percent discount on fifth-generation premiums for three years.

Management of actuarial assumptions used to value insurance liabilities will also be tightened. Insurers will be required to submit an annual report to the Financial Supervisory Service alongside their business filings, detailing the basis and methodology for actuarial assumptions such as loss ratios and operating expenses, along with any changes and verification results. If actuarial assumptions are revised during the year, insurers must report the reasons, the substance of the changes, and the financial impact to their risk management committees.

Insurers' supervisory responsibility over general agencies (GA) to which they outsource sales will also be factored into management performance evaluations. The FSC plans to assess each insurer's GA operational risk using metrics such as incomplete-sale ratios and contract retention rates, and will apply incentives or penalties to their Korea Insurance Capital Standard (K-ICS) solvency ratios based on the results.

The amendment also adds the duration gap — a measure of the difference in interest rate sensitivity between assets and liabilities — to management performance evaluation indicators, and caps insurers' real estate project financing credit exposure at 20 percent of total assets.

The amendment is set to take effect Jan. 1 next year in principle. However, the deregulation of indemnity insurance product design rules will apply immediately upon FSC approval, while provisions on actuarial assumption reports will take effect Dec. 31 this year.

Fifth-generation indemnity insurance was launched in May. According to the insurance industry, 19,134 contracts had been converted from the first or second generation to the fifth generation through the end of July, accounting for about 70 percent of all generational conversions. Starting in November, the contract-conversion discount program — offering a 50 percent premium reduction for three years — will also be extended to first- and second-generation policyholders who enrolled before March 2013 and hold contracts with no re-enrollment conditions.


rim@heraldcorp.com