Implementation of Best Practices for Settlement Support Funds in the GA Industry: Ending Unfair Practices

The Best Practices for Settlement Support Funds, established by the Korea Insurance Agency Association (GA Association) and financial authorities to eradicate unfair practices in the GA industry,

The Best Practices for Settlement Support Funds, established by the Korea Insurance Agency Association (GA Association) and financial authorities to eradicate unfair practices in the GA industry, will be officially implemented this month. This guideline aims to strengthen the operating standards for settlement support funds and internal controls to establish fair competition within the GA industry. In this blog, we will explore the key aspects of the Best Practices for Settlement Support Funds, the reasons for their implementation, and their potential impact on the GA industry.

1. Background of the Implementation of Best Practices for Settlement Support Funds

The GA industry has been providing excessive settlement support funds to attract insurance agents, which has led to unfair business practices and potential consumer harm. To address these issues, the GA Association and financial authorities decided to introduce the Best Practices for Settlement Support Funds to ensure fair competition and strengthen consumer protection. These guidelines were finalized after a comprehensive review by the Insurance Reform Committee and are set to be officially implemented this month.

2. Key Points of the Best Practices for Settlement Support Funds

The Best Practices for Settlement Support Funds include stricter operating standards and enhanced internal controls for the GA industry. Initially, the guideline aimed to set a cap on settlement support funds in line with the existing 1,200% rule. This rule limits the first-year commission paid by an insurance company to its agents to no more than 12 times the monthly premium paid by the policyholder.

However, concerns were raised by legal experts that setting such a cap could be considered unfair joint action under the Fair Trade Act. Therefore, the guideline was modified to expand the standards for fund recovery instead of imposing a cap. The recovery standards will now include performance indicators such as contract retention rates, rates of incomplete sales, and the occurrence of customer complaints, in addition to existing performance metrics.

Additionally, each GA must disclose the total amount of settlement support funds, the prepayment rate, and the agent retention rate on the GA Association’s website each quarter.

The guidelines apply to GAs with more than 100 affiliated agents, and these GAs are also required to establish separate operational rules, including criteria for selecting beneficiaries, evaluating them, and monitoring and recovering the funds.

3. Strengthening Internal Controls and Consumer Protection Measures

The GA Association plans to use this briefing session to discuss ways to strengthen internal controls and enhance consumer trust with industry stakeholders. This includes sharing current issues related to internal controls, such as the “Do-Not-Call” system in the financial sector, and encouraging GAs to establish autonomous control systems.

The financial authorities are also expected to intensify penalties against unfair business practices. Earlier this year, the financial authorities conducted internal control workshops for large GAs with over 500 affiliated agents, urging them to set their own limits for settlement support funds. After observing little progress, they launched a task force (TF) in cooperation with the GA Association to directly establish these best practices.

4. Potential Impact and Future Prospects for the GA Industry

The GA industry has historically faced issues like consumer harm and incomplete sales due to its practice of providing settlement support funds to attract agents. With the implementation of the Best Practices for Settlement Support Funds, these problems are expected to be addressed, and the business order within the GA industry will likely become more disciplined.

A GA industry representative expressed optimism, stating, "The implementation of these best practices will be an important step in reducing unfair business practices and strengthening consumer protection."

The official implementation of the Best Practices for Settlement Support Funds marks a significant turning point in the effort to reform the GA industry’s unfair business practices and enhance consumer protection. It will be important to monitor whether the GA industry can use this change to establish a fair competitive order and provide more trustworthy services to consumers. We hope these efforts lead to increased trust in the insurance market.