Strengthening Oversight of Insurance Agencies: Blocking "4 Major Violations" and Regular Inspections

The financial authorities in Korea are tightening their grip on large General Agencies (GA) in the insurance industry to protect consumers from potential harm

The financial authorities in Korea are tightening their grip on large General Agencies (GA) in the insurance industry to protect consumers from potential harm. As GAs continue to engage in intense competition, authorities are focusing on preventing "4 major violations" and enhancing inspection processes to maintain market order and minimize consumer risks.

Recently, the Financial Supervisory Service (FSS) and other financial authorities have been paying close attention to the large-scale competition occurring within the insurance industry, specifically targeting General Agencies (GA). Despite efforts to curb aggressive sales tactics and protect consumers, violations still persist, particularly among the larger agencies.

The FSS has introduced stricter measures to address what they refer to as the "4 major violations" that frequently occur in GA operations: fake contracts, unfair contract switches, routed contracts with improper commissions, and offering special benefits to clients. These practices have long been a source of consumer harm and market disruption.

To prevent these violations from recurring, the authorities have not only shared and spread awareness about these violations within the industry but have also enhanced their inspection efforts. Regular inspections will now be conducted, including joint audits between insurance companies and their associated GAs to improve efficiency. Additionally, simultaneous inspections of both large GAs and the insurers working with them will become routine.

A key area of concern has been the payment of settlement support bonuses to insurance agents. In a recent review, the FSS found that some GAs had paid excessively high bonuses, up to 2.6 times the average amount. Many GAs lacked proper oversight in distributing these bonuses, leading to issues like improper contract handling and a high number of early cancellations.

The financial authorities are committed to tightening the internal controls of GAs. Measures are being taken to regularly monitor and inspect agencies that show signs of inappropriate behavior, particularly regarding unfair contract switches. The FSS has also stated that GA operations will be scrutinized under new industry guidelines introduced as part of a self-regulatory agreement that took effect this month.

As competition within the insurance industry intensifies, the financial authorities are determined to uphold fair practices and safeguard consumer interests. Through continuous monitoring, stricter regulations, and improved internal controls, they aim to create a more transparent and responsible market environment for all stakeholders.