[1200% Rule Two Months In] Deferred Payments, Interest-Free Loans, and a Myriad of Circumvention Tactics After 13 Months

Competition to Scout Experienced Planners Has Eased
Workarounds to Evade the 1,200% Rule Still Persist
FSS to Issue Monthly Guidelines... "Comprehensive Inspection" of GAs Next Month

Since last month, the application of the so-called '1200% rule' has been expanded to include insurance planners affiliated with corporate insurance agencies (GA). However, various circumvention tactics to avoid the regulations are still prevalent at workplaces. The financial authorities have made it clear that any payment, regardless of timing or name, will be deemed a sales commission if it is effectively compensation for soliciting insurance contracts. The authorities also plan to release related guidelines every month until the new regime is firmly established in the market. A full-scale special inspection, focused on unsound business practices among GAs, has also been announced for next month.

According to the insurance industry as of August 25, the 1200% rule has been extended to planners affiliated with GAs since July 1. GA refers to organizations that gather and sell products of various insurance companies. The regulation has already been applied to exclusive planners since 2020. The 1200% rule limits the total commissions, including acquisition fees, paid to planners in the first year of a new insurance contract to 12 times the monthly premium. The aim is to curb excessive upfront commissions or settlement support payments designed to poach experienced planners from other companies, and to address sales practices that prioritize short-term performance.

Both the authorities and industry generally agree that aggressive competition to recruit experienced planners has become less intense since the new rule was implemented. An official from the Financial Supervisory Service (FSS) stated, "Although official statistics have yet to be compiled, monitoring results indicate that headhunting competition for experienced planners has clearly subsided."

An official from the life insurance sector also explained, "The fierce competition in the past to recruit experienced planners by paying excessive settlement support payments has been considerably alleviated," adding, "Supervisory authorities have continued to send strong signals that GAs engaging in circumvention tactics will be strictly investigated after implementation, and GAs are making efforts to comply with the regulation."

However, there are still many instances of so-called ‘loopholes’ whereby companies attempt to circumvent regulations simply by changing the timing, rationale, or payment channel for commissions. Reports received by the Korea Life Insurance Association and the General Insurance Association of Korea cite representative examples such as: paying settlement support payments after 13 months, providing large advances as interest-free loans, providing money under alternative labels such as education, seminar, or consulting fees, and splitting commission payments via third parties or separate legal entities.

The most common circumvention strategy is the so-called "13th month payout." To avoid the annual commission cap, companies delay the payment of settlement support until after the 13th month. On this, the FSS has stated that simply delaying the payment date does not change the substance: if the payment is compensation for first-year sales performance, it must be considered an initial commission and included in the 1200% rule calculation.

There are also cases of using loans for circumvention. GAs provide interest-free loans to planners, subsequently deducting repayments from future commissions or waiving repayment once certain sales targets are met. Other methods include arranging loans through financial institutions such as savings banks while the GA acts as guarantor. However, all these tactics are viewed as violations of the 1200% rule. The FSS also considers advancement of funds backed by anticipated commissions as de facto upfront commissions.

Other examples include splitting commissions amongst several people before eventually passing the funds to the actual solicitor, or paying for services such as interior or consulting provided by businesses run by the planner or their family. There are even cases where the GA headquarters stays within the 1200% cap, but the branch manager or director uses personal funds or a separate company to cover recruitment costs.

Jaeuk Suh, CEO of Aimbridge Private Equity, commented, "We are seeing cases where GAs at the headquarters level comply with the 1200% rule, but branch managers, business directors, or affiliated companies share the cost of recruiting planners," adding, "Even if it is just a personal loan, if it is linked to a planner's move or performance, and the company is involved or tacitly approves, it may well be considered circumvention."

The authorities plan to continue releasing monthly guidelines based on field reports and questions until the new system becomes embedded in the market. An FSS official said, "We will organize reported and inquired cases such as settlement support payments and loans, and offer additional guidelines about once a month."

The FSS also plans to use regular monitoring and field reports in selecting targets for future inspections. Next month, GAs with repeated unlawful business practices will undergo an intensive full-scale inspection.

In the field, some see the intent of the regulation as reasonable, but there are concerns that stricter commission caps and longer payment periods may dampen planners' motivation for sales and encourage attrition. One GA official said, "It is regrettable that regulations intended to combat unsound business practices end up imposing the same burden on planners who have faithfully managed clients and adhered to sound ethics."

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