"Agents Receiving High Settlement Bonuses Also Involved in Unfair Contract Transfers" – GA Industry's Intense Recruitment Competition and Self-Regulatory Efforts

Recently, the competition to recruit agents in the General Agency (GA) industry has intensified, sparking controversy over settlement bonuses.

Recently, the competition to recruit agents in the General Agency (GA) industry has intensified, sparking controversy over settlement bonuses. Excessive settlement bonuses have led to consumer harm, prompting the Financial Supervisory Service (FSS) and the GA Association to establish new standards and strengthen self-regulation. In this article, we examine the issues surrounding settlement bonuses in the GA industry and the efforts to address them.

Over the past two years, a total of 259 billion won in settlement bonuses has been paid to 14,901 experienced agents affiliated with General Agencies (GAs), averaging 17.4 million won per agent. However, data shows that the more settlement bonuses an agent receives, the more likely they are to be involved in unfair contract transfers. This finding came from a recent investigation by the Financial Supervisory Service (FSS), which reviewed 39 GAs with more than 1,000 agents between February and April.

A settlement bonus is essentially a scouting fee paid to an agent when they move from one insurance company or GA to another, compensating for the loss of commissions from previous contracts. However, some GAs have recently offered settlement bonuses reaching hundreds of millions of won, stirring controversy. This excessive bonus practice has led to concerns about "orphan contracts," unfair contract transfers, and intermediary contracts, all of which can result in significant consumer harm.

The problem is that settlement bonuses, ranging from tens of thousands to hundreds of millions of won, have often been managed without clear oversight. Among the 39 GAs investigated, only 27 had headquarters-level control over settlement bonuses, while the rest operated independently at branch or office levels. Additionally, there was ambiguity in the criteria for selecting who would receive these bonuses and how much they would be. Only 26 GAs had criteria for determining bonus recipients, and only 23 had standards for calculating bonus amounts. Furthermore, only 16 GAs had set a maximum limit for these bonuses.

In response, the FSS plans to continue its inspections related to unfair contract transfers and impose strict penalties. Further regulatory discussions are expected at platforms like the Insurance Reform Committee. Additionally, all medium to large-sized GAs with more than 100 agents will now be required to disclose the total amount of settlement bonuses paid for agent recruitment on a quarterly basis.

The GA Association has also introduced a "Settlement Bonus Standard," mandating that medium to large-sized GAs establish a committee of compliance officers (up to 10 members) to oversee these bonuses and regulate their application more transparently. This aims to ensure fair agent recruitment and payment processes while minimizing consumer harm and fostering a healthier competitive culture within the GA industry.

A representative of the GA Association stated, "The implementation of the Settlement Bonus Standard will balance our self-regulatory measures and reduce excessive recruitment competition, allowing settlement bonuses to be distributed more fairly." They added, "This will help minimize consumer harm from cost transfers and contribute to stable profit generation by reducing business expenses."

The efforts by the Financial Supervisory Service and the GA Association to address the issue of settlement bonuses in the GA industry are crucial for consumer protection and promoting a healthy competitive environment. Through self-regulation and increased transparency, the industry aims to curb the excessive competition in agent recruitment and reduce consumer harm. We hope these changes contribute to creating a sustainable and trustworthy insurance market.