Transparency in GA Scout Costs: Quarterly Disclosures to Strengthen Market Discipline

To curb excessive competition in recruiting insurance agents, general agencies (GAs) will now be required to disclose the total amount of settlement support funds paid for recruiting agents on a quarterly basis.

To curb excessive competition in recruiting insurance agents, general agencies (GAs) will now be required to disclose the total amount of settlement support funds paid for recruiting agents on a quarterly basis. This initiative, led by the Korea Insurance Agents Association, aims to enhance transparency and promote healthy market practices within the insurance industry. This blog post will delve into the key aspects of the newly established guidelines known as the 'Best Practices for GA Insurance Agent Settlement Support Fund Operations' and the expected impact of these measures.

Recently, competition among general agencies (GAs) in the insurance industry has intensified, with some GAs offering settlement support funds amounting to 100-200% of the agents' previous annual salary to lure them from other agencies. While these funds are intended to compensate for potential income loss due to job changes, the excessive competition has led to disputes within the industry and small firms losing key personnel. To address these issues, the Korea Insurance Agents Association has established the 'Best Practices for GA Insurance Agent Settlement Support Fund Operations', which will be implemented from next month.

This guideline is part of the initiatives by the Financial Services Commission and the Financial Supervisory Service through the Insurance Reform Committee. Previously, the Financial Supervisory Service highlighted issues in the GA sector, such as fierce scout competition and a focus on high-commission products, emphasizing the need for healthier market practices. The best practices will apply to GAs with over 100 agents, requiring them to establish and manage their own regulations regarding criteria for payment eligibility, calculation, payment, and recoupment of settlement support funds, as well as monitoring fund operations.

Notably, when GAs recruit agents, they must prepare a separate contract specifically for the settlement support fund in addition to the standard employment contract. During this process, GAs are required to clearly inform agents of relevant guidelines, and in cases where penalties such as recoupment apply, agents must be promptly notified via message or call. Recoupment criteria are expected to consider factors such as contract retention rate, incomplete sales rate, and complaint rate, with each GA expected to review whether recoupment is appropriately carried out on a quarterly basis.

A particularly noteworthy aspect of the new guidelines is the requirement for GAs to disclose their settlement support fund operation details on the Korea Insurance Agents Association's website each quarter. This increased transparency of scout costs per GA is anticipated to enhance market surveillance. The disclosure items will include the total amount paid, the advance payment rate, the retention rate of agents who received funds, and the non-recovery rate. This level of transparency allows for a comprehensive review of the costs incurred by GAs for agent recruitment and management, which is expected to encourage more restrained competition.

An industry representative commented, "While job changes themselves are not inherently negative, the recent increase in competition has led to issues such as smaller firms losing staff and concerns over cutthroat competition," adding, "With transparent cost disclosures, GAs are likely to exercise greater self-restraint."

Enhancing the transparency of GA scout costs is expected to significantly contribute to creating a healthier competitive environment within the GA sector. By preventing excessive recruitment competition and boosting overall industry credibility, these guidelines represent a crucial step toward the sustainable growth of the insurance industry. We look forward to seeing these efforts by the Korea Insurance Agents Association and financial authorities play a key role in fostering a more balanced and trustworthy market landscape.