Impact of New Insurance Regulation: Reduced Subsidiary Delegation but Increased Fees for Life Insurers

This year, a change in the Insurance Business Act led to a significant reduction in the delegation of claims adjustment tasks to subsidiaries by major life insurers

This year, a change in the Insurance Business Act led to a significant reduction in the delegation of claims adjustment tasks to subsidiaries by major life insurers, even as the total amount of fees paid to these subsidiaries increased. The new regulation aims to curb "self-claims adjustment" practices, but the issue of fee concentration remains persistent. This article explores the current state of subsidiary delegation in the insurance industry, the background of the regulatory changes, and their impact.

In 2024, the proportion of claims adjustment work delegated to subsidiaries by major life insurance companies has significantly decreased. This change is largely attributed to the recent implementation of measures to prevent "self-claims adjustment." According to the insurance industry, three major life insurers—Samsung Life, Hanwha Life, and Kyobo Life—have seen their delegation of claims adjustment to their subsidiaries drop by 11 to 25 percentage points compared to the previous year.

The amendment to the Enforcement Decree of the Insurance Business Act stipulates that if an insurer delegates more than 50% of its total claims adjustment cases from the previous fiscal year to a subsidiary, it must report this to the board of directors and disclose it on the company website. This move aims to address fairness concerns and accusations of bias in cases where insurers outsource the majority of their claims adjustment work to their subsidiaries. The revised guideline was established in July last year by the Financial Services Commission (FSC) and the Financial Supervisory Service (FSS) and was legislated this year.

For example, Samsung Life's delegation rate to its subsidiary, Samsung Life Service Claims Adjustment, decreased by 11.6 percentage points from the previous year. Hanwha Life saw a 25.1 percentage point drop in its delegation to Hanwha Claims Adjustment, while Kyobo Life reduced its delegation to its subsidiary KCA by 18.9 percentage points. These reductions align with the amended regulation's goal of ensuring greater fairness in delegating claims adjustment work.

However, despite a reduction in the number of delegated cases, the total fees paid to subsidiaries have increased. Samsung Life's fee payments to its subsidiary decreased by 4.3 percentage points but rose by 700 million KRW in total. Kyobo Life's fee percentage fell by 9.6 percentage points, yet the total amount increased by 300 million KRW. Only Hanwha Life showed improvements in both the percentage and total amount of fees paid.

This situation reflects that, while the proportion of claims adjustment work delegated to subsidiaries has been reduced, the total fees paid to these subsidiaries have continued to rise. Despite persistent issues with fee concentration, the reduction in delegation rates indicates a positive change driven by the new regulation.

While the amendment to the Insurance Business Act has led to a decrease in the proportion of claims adjustment work delegated to subsidiaries by major life insurers, it also revealed a limitation of the regulation as the total fees paid have increased. This change may be the first step toward enhancing fairness in the insurance industry. However, further improvements in policies and practices are necessary to establish a more transparent and equitable environment in the long run.