Settlement Support Payments for GA-Affiliated Planners Fall 40%-50% After the "1,200% Rule" Is Extended to GAs (Roundup)

First disclosed at policy forum co-hosted by Rep. Park Seonghun's office and the Korea Insurance Research Institute

Settlement support payments, a breeding ground for "improper policy replacement," down 40-50%

Since the Financial Supervisory Service (FSS) introduced the "1,200% Rule" for general agency (GA) insurance agencies in July, settlement support payments for GA-affiliated insurance planners have fallen by around 40% to 50%, according to newly disclosed figures. This is the first time the financial supervisory authorities have made these figures public.

Participants pose for a commemorative photo at the “Policy Debate on Improving Order in Insurance Solicitation and Protecting Consumers,” co-hosted by Rep. Park Seonghun of the People Power Party and the Korea Insurance Research Institute at the National Assembly Members’ Office Building in Yeouido, Seoul, on the 3rd. Attendees included People Power Party leader Jang Donghyuk (fifth from the right in the back row), Rep. Park Seonghun, a member of the National Assembly’s Political Affairs Committee (fifth from the left in the back row), Nam Sangwook, president of the Korean Insurance Academic Society and a professor in the School of Business Administration at Seowon University (sixth from the left in the front row), Kim Donggyeom, a research fellow at the Korea Insurance Research Institute (third from the left in the front row), and Park Wongyu, head of the Insurance System Team at the Financial Supervisory Service (second from the left in the front row). Photo by Moon Chaeseok

The FSS disclosed this at a panel discussion on the 3rd at the "Policy Forum on Improving Order in Insurance Solicitation and Protecting Consumers," co-hosted by People Power Party lawmaker Park Seonghun and the Korea Insurance Research Institute at the National Assembly Members' Office Building in Yeouido, Seoul.

In July, the financial authorities began pursuing reforms to the sales commission system, including extending the "1,200% Rule" to insurance planners affiliated with GAs. The rule caps the solicitation commission paid to a planner in the first year of an insurance contract at 12 times the monthly premium, with the aim of curbing excessive competition to pay commissions upfront.

Park Wonkyu, head of the FSS Insurance System Team, who took part in the panel discussion, explained that the financial supervisory authorities had identified large settlement support payments offered amid intense competition among GAs to recruit insurance planners as a cause of improper policy replacement, or switching insurance policies.

"We determined that the large settlement support payments made by GAs were the starting point for improper policy replacement," Park said. "We found that a practice had spread in which GA A offered an additional year's salary to a sales planner earning KRW 100 million to KRW 200 million a year, and paid settlement support if the planner met performance targets in their first, second, and third years, but reclaimed the payments if they did not. This led to more GA-affiliated planners changing jobs and, in turn, to improper policy replacement."

Park disclosed statistics covering the two months after the 1,200% Rule was extended to GA-affiliated planners on July 1.

"The figures for July and August show that large settlement support payments were effectively close to zero," he said. "They were down by about 40% to 50% compared with the first half of the year."

At the forum, Kyung Hee University business professor Sung Juho described it as "a GA-bashing session." Participants voiced criticism that the regulatory framework was not properly holding GAs accountable in proportion to their growth. According to the FSS, GAs have grown into a leading sales channel in the insurance market, with around 4,000 agencies and more than 330,000 affiliated planners.

Nam Sangwook, president of the Korean Insurance Society and a professor in the School of Business at Seowon University, said that incentives, information, accountability, sanctions, and the regulatory framework all needed to function properly to regulate GAs. "Of these five areas, accountability is the most important," Nam said. "We need internal control standards tailored to the size of each GA, as well as a system that holds CEOs accountable when unsound sales practices occur."

"The key problem in the insurance solicitation market is the mismatch between authority and responsibility," said Kim Donggyeom, a research fellow at the Korea Insurance Research Institute. He recommended a system for cross-checking comparison and explanation forms to verify which candidate products the planner compared for the consumer, whether the company and product selected by the consumer were included, and whether the planner explained the reasons for the recommendation and the advantages and disadvantages of the new contract compared with the existing one.

Politicians criticized the financial authorities for failing to properly enforce and sanction violations, despite having already established relevant rules. They said that regulations were not working effectively in practice, including the indicators for assessing the adequacy of GA operational risk management set out in Appendix 13-2 of the proposed partial amendment to the Regulation on Supervision of Insurance Business, and the prohibited acts in insurance solicitation specified in Article 97 of the Insurance Business Act.

In particular, although Article 97 of the Insurance Business Act prohibits inducing the improper termination of an existing insurance contract, proceeding with a contract using a proxy signature instead of the consumer's handwritten signature, and obstructing the withdrawal of an insurance application or the termination of a contract, sanctions for improper policy replacement remain ineffective.

"The direction of the proposed amendment to the supervisory regulation is sound: it would introduce quantitative and qualitative indicators for assessing the adequacy of GA operations as part of the management assessment of insurance companies. But what matters is whether the system is properly implemented," said Jang Youngjin, a legislative researcher at the National Assembly Research Service. "It is the financial authorities' responsibility to accurately monitor implementation and reflect the results, alongside improving the system."

He added, "Formal documents such as comparison and confirmation guides are important, but substantive operational reviews, checks on whether the system is functioning, and follow-up verification are also needed. If GA violations continue despite these measures, oversight of GAs should be strengthened."

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