FSS to revise insurance supervision rules in October

Insurer-specific policy-switching rates to be disclosed publicly

Number of registered agents hits record 737,000 in first half

GA firms rushed to hire before '1200% rule' took effect in July

Disclosure of agents' career and disciplinary history still awaits legislation

The number of registered insurance agents rose by nearly 28,000 in the first half of this year, as general insurance agencies rushed to hire before the so-called "1200% rule" — which caps first-year recruitment commissions at 12 times the monthly premium — took effect in July. [Getty Images Bank]
The number of registered insurance agents rose by nearly 28,000 in the first half of this year, as general insurance agencies rushed to hire before the so-called "1200% rule" — which caps first-year recruitment commissions at 12 times the monthly premium — took effect in July. [Getty Images Bank]

"A better product has come out — why not cancel your current policy and sign up for a new one?"

If a customer receives that kind of pitch from an agent who has just moved to a new firm, they will soon be able to check how often that insurer's own clients have been switched to new policies before deciding what to do. The Financial Supervisory Service plans to introduce a public comparison disclosure of each insurer's in-house policy-switching rate through a revision to insurance supervision rules next month, raising hopes the measure will help curb improper policy switching.

According to financial industry sources Wednesday, the FSS is pushing to introduce a comparison disclosure system for policy-switching rates broken down by insurer, sales channel and product, with the aim of rolling it out in the second half of this year. The relevant insurance supervision rules are expected to be revised in October.

The disclosed figure will be the "in-house switching rate" — the share of contracts within the same insurer where a customer canceled an existing policy and took out a new one, rather than contracts that moved to a different insurer altogether. Insurers will submit the underlying data, which industry associations will verify before posting it on the websites of the Korea Life Insurance Association and the General Insurance Association of Korea every six months. Consumers will be able to compare, before deciding whether to sign up or cancel, how frequently policy switching occurs at each insurer and through each sales channel.

Policy switching becomes a problem because the costs fall squarely on the consumer. Canceling an existing policy midway through typically means receiving a surrender value lower than the total premiums paid, while taking out a new policy can mean higher premiums due to the customer's increased age, or reduced coverage because of medical conditions that developed in the interim. A new policy also resets the exclusion and reduction periods, leaving the customer without full coverage for a certain period. The agent, meanwhile, collects a recruitment commission each time a new contract is signed.

The regulator's push to revise the rules stems from the mass movement of agents through general insurance agency, or GA, channels feeding directly into improper switching. The typical pattern involves an agent who receives a relocation incentive payment to join a new firm, then persuades existing clients to cancel their policies and switch to the new firm's products. In May, the FSS issued a consumer alert after excessive competition over relocation incentive payments among GA firms caused a surge in improper-switching harm, and identified stronger disclosure of switching rates as a key measure to prevent a recurrence.

The problem is that agent movement in the first half of this year was on an unprecedented scale, meaning a large number of consumers received word that their agent had changed. GA firms scrambled to hire as many agents as possible before the so-called "1200% rule" — which caps first-year recruitment commissions for GA-affiliated agents at 12 times the monthly premium and took effect in July — tied relocation incentive payments to the commission ceiling.

Data submitted to the National Assembly's Political Affairs Committee by the FSS, obtained by People Power Party lawmaker Seo Il-jun, showed that the number of registered insurance agents stood at a record 736,766 at the end of June. That was up 27,580, or 3.9 percent, from 709,186 at the end of last year — a gain accumulated over just six months. The increase was concentrated in GA firms, which added 15,441 agents (up 4.9 percent), and captive insurer sales forces, which added 13,550 (up 6.3 percent), while bancassurance registrations fell by 1,446. GA-affiliated agents now account for 45.0 percent of all registered agents, up more than 3 percentage points from 41.9 percent at the end of 2022.

"In the second half, the 1200% rule started including relocation incentive payments within the commission cap, so even firms that wanted to hire couldn't take on many people," said one GA industry official. "That's why so much hiring was pulled forward into the first half — competition among GA firms was particularly fierce in June, right before the regulation took effect in July."

Hiring competition has calmed significantly since the regulation took effect, but workarounds have emerged, including raising commission rates from the 13th month onward to circumvent the first-year cap. The FSS regards this as an improper practice and has included it among the items to be examined in second-half inspections.

However, the safeguards needed to fill the consumer protection gap left by the large-scale agent movement before the regulation took effect are not yet fully in place. According to the FSS Insurance Reform Council's task progress report, an October revision to the supervision rules is scheduled to cover a revamp of the GA disciplinary framework — including a ban on transferring contracts to evade sanctions and restrictions on GA executives holding multiple registrations — as well as the introduction of the in-house switching rate disclosure to prevent improper switching.

By contrast, a plan to expand the disclosure of agent information — requiring agents' recruitment history and disciplinary records to be included in insurance guidance materials and compiled by industry associations for consumers — was dropped from the regulatory reform committee's review agenda. The original plan was to establish a legal basis through an amendment to the enforcement decree of the Insurance Business Act, but it was excluded during the regulatory review process, leaving it as a matter requiring separate legislation. Consumers will gain the ability to see policy-switching rates at the insurer level, but will still have no way to check how many times the agent sitting across from them has changed firms, or whether that agent has ever faced disciplinary action.

"The number of agents has grown by nearly 30,000 in just six months, and GA firms are getting ever larger, yet the mechanism that would let consumers check an agent's career and disciplinary history is still waiting for legislation," said lawmaker Seo. "As agent turnover accelerates, so does the risk of improper switching — legislation to expand agent information disclosure and overhaul the GA disciplinary framework must be expedited to close the consumer protection gap."


won@heraldcorp.com