Korea Insurance Research Institute: "Insurers Need Short- and Long-Term Consumer Protection KPIs for Executives"

Link Deferred Incentives, Shareholding and Clawbacks
Look to U.K. and U.S. Models for Long-Term Performance-Focused Management

The Korea Insurance Research Institute said on Nov. 2 that domestic insurers need to establish short- and long-term key performance indicators (KPIs), including consumer protection, for evaluating executives and build a compensation system centered on long-term performance rather than short-term results.

Lee Seung-jun, a research fellow at the institute, and researcher Moon Hye-jung released a report titled "Executive Performance Evaluation and Remuneration Disclosure at Overseas Insurers: Cases and Implications." Citing examples from the UK's Aviva and U.S.-based Prudential Financial, they called for reforms to performance-based compensation systems in South Korea's insurance industry.

At Aviva, a British insurance group, short-term incentives were divided between financial performance (70%) and strategic and non-financial performance (30%). The strategic and non-financial measures included indicators related to risk management, employees and customer experience, so that performance in managing risks and serving customers was reflected in compensation.

In 2025, the common performance score used to determine executives' short-term incentives was 189.3% of base salary. Individual awards were then allocated according to personal performance, subject to caps of 200% of base salary for the chief executive officer (CEO) and 150% for the chief financial officer (CFO).

Long-term incentives were determined based on financial and shareholder performance over three years (80%) and non-financial performance (20%). The non-financial measures included customer-related performance, such as the Net Promoter Score (7.5%), as well as sustainability indicators: a reduction in carbon dioxide (CO2) intensity (7.5%), racial diversity among senior executives (2.5%) and the proportion of women in senior positions (2.5%).

Aviva operated a range of executive compensation arrangements, including cash and deferred shares. For example, in 2025, CEO Amanda Blanc received total remuneration of 9.764 million pounds (about 17.5 billion won), while CFO Charlotte Jones received 4.466 million pounds (about 8 billion won). Performance-linked compensation accounted for 85.6% and 80.8% of their respective totals.

Half of short-term incentives was paid in cash, while the other half was deferred in shares and set to vest in equal installments over three years. Any dividends equivalent to those paid during the deferral period were reflected as additional shares upon vesting. Shares awarded as long-term incentives were required to be held for an additional two years after the three-year performance period ended. This brought the total holding period to five years before they could be sold. The arrangement was designed to encourage executives to manage the business for long-term performance rather than focus on short-term results.

Prudential Financial's total direct compensation (TDC) structure for executives comprised base salary, short-term incentives and long-term incentives. Short-term incentives were based on financial performance (90%) and customer experience (10%). For non-financial measures, the company used business-unit-specific survey results for the Net Promoter Score (NPS), which measures customer experience.

Long-term incentives consisted of performance shares (PS) (75%) and restricted stock units (RSUs) tied to continued employment (25%). Performance shares were assessed over three years, with relative return on equity (ROE) and growth in adjusted book value per share (BVPS) each accounting for 50%.

As at Aviva, performance-linked compensation made up most of the total remuneration for Prudential Financial executives. In 2025, CEO Andrew F. Sullivan's total direct compensation was $19.06 million (about 25.5 billion won), of which 94% was performance-linked.

The researchers advised domestic insurers to draw on the two overseas groups' examples, set clear short- and long-term management goals, and establish executive KPIs that reflect both financial performance and consumer protection.

"Short- and long-term goals, including profitability, risk control and consumer trust, should be reflected in executive performance evaluations. These evaluations should also assess long-term shareholder performance and the fulfillment of coverage obligations under insurance contracts," the researchers said. "In particular, consumer protection performance should be assessed not only through customer satisfaction and willingness to recommend (NPS), but also by considering claims payments, the appropriateness of policy retention, dispute resolution and long-term loss experience by product."

They also called for linking short- and long-term incentives, deferred compensation, shareholding, and malus and clawback provisions to reflect the insurance industry's distinctive long-term risks and executives' accountability in compensation systems.

"Along with extending the performance evaluation period, it should be possible to assess how risk assessments made at the time of underwriting translate into actual claims payments and investment performance," the researchers said. "To do so, insurers need an evaluation framework that can retrospectively link key decisions on underwriting, product development, actuarial assumptions and asset management with their outcomes."

The researchers also said disclosure systems should be enhanced so external stakeholders can review how executive compensation is calculated and the basis for those decisions.

"Disclosing performance-measure weightings, targets and results, adjustment items and amounts, individual and discretionary adjustments, and final payments in a way that links them together can improve the transparency of compensation policies," the researchers said. "In particular, when adjusting earnings for compensation assessments, companies should clearly explain the reasons for the adjustments and assign responsibility, ensuring that losses resulting from past executives' decisions are not excluded from performance evaluations. They should also provide the basis for those decisions."

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