Korea Insurance Research Institute: "Internal Control Requirements for GAs Should Be Differentiated by Size...Citing Japan as Reference"

One in Three Insurance Policies Sold Through GAs... Number of Agents Reaches 285,000 as Agencies Grow Larger

Japan Implements Tiered Management for 100 Large GAs Earning Over 2 Billion Yen in Annual Solicitation Commissions

KIRI: "Korea Should Consider Differentiated Internal Control Obligations by GA Size"

As the share of corporate insurance agencies (GAs) in insurance product sales continues to grow within the insurance industry, there has been a suggestion that internal control obligations for GAs should be differentiated according to their size.

On September 10, the Korea Insurance Research Institute released a report titled "Reform of the Insurance Agency Supervision System and Internal Control Regulations in Japan," which covers these topics.

According to the report, the Financial Services Agency of Japan designated approximately 100 insurance agencies that receive annual solicitation commissions of 2 billion yen (about 17.5 billion won) or more as "designated large-scale multiple agencies," and in June, introduced a direct supervision system requiring these agencies to establish internal controls and governance structures equivalent to those of insurance companies (primary insurers).

This resulted from the so-called "Bigmotor Incident," which became a major social issue in 2023, leading to the passage of an amendment to the Insurance Business Act in March last year. Bigmotor, a major used car distribution company in Japan, was registered as an insurance agency for non-life insurers in addition to its used car sales and maintenance operations, enabling it to handle insurance solicitation for auto policies. This allowed the company to simultaneously engage in car sales, maintenance, and insurance solicitation.

Following Bigmotor’s sprawling business operations, systemic issues such as inflated car repair costs and excessive insurance claims began to emerge, exposing structural collusion between insurers and agencies. In the aftermath, public scrutiny in Japan has increased, not only regarding insurers’ sales management systems but also concerning the internal controls and compliance levels within agencies themselves. In this context, the Financial Services Agency has consistently highlighted the need for oversight, emphasizing that the selling activities of insurance agencies directly translate into risk exposures for the insurer.

The Financial Services Agency of Japan has also imposed on insurance agencies the obligation to establish internal management systems commensurate with those required for financial institutions—not only for insurance sales, but also for contract maintenance, claims assistance, and customer management. The agency mandated the placement of compliance officers at every branch and required the appointment of a Chief Compliance Officer (CCO) at the head office, aiming both to protect consumers and to enhance soundness in the sales channel.

In addition, agencies are required to operate compliance monitoring units that are independent from their sales departments, strictly separating "sales" and "control" functions. Such separation is intended to structurally block distorted sales incentives and prevent improper sales practices within agencies.

The disclosure obligations have also been strengthened. In cases of misconduct, agencies are now required to submit reports to all associated insurers. To prevent collusion between primary insurers and agencies, the system now requires disclosure of non-financial information as well. 

The Korea Insurance Research Institute also suggested that domestic regulations should be revised, requiring large GAs in Korea to establish robust internal control frameworks as a mandatory obligation.

According to the Financial Services Commission, as of 2024, GAs account for 35.7% of insurance product sales in Korea. The number of insurance planners affiliated with GAs rose from 244,000 in 2021 to 285,000 in 2024.

Yunji Kang, a researcher at the Korea Insurance Research Institute, stated, "Japan’s institutional reforms serve as an example of strengthening the responsibility of GAs by imposing separate internal management obligations on agencies above a certain size, while maintaining insurers’ responsibilities for supervising agencies."

She further suggested, "Going forward, to prevent any supervisory and management gaps between delegated control by insurers and independent internal controls within GAs in Korea, it is necessary to specify the scope of responsibility for each party in detail and to consider differentiating internal control obligations based on the size and work characteristics of each GA."

Meanwhile, the Korea Insurance Research Institute announced the launch of "Global Review," a newly rebranded publication formerly known as "Overseas Insurance Report." The Global Review will be published once a month.

An official of the Korea Insurance Research Institute stated, "Through Global Review, we will investigate and analyze key business models, overseas expansion, and mergers and acquisitions (M&A) by global insurers, thereby providing information necessary for Korean insurers seeking to expand overseas and insights for improving domestic regulatory frameworks."

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