[Monster GA]② Insurance Agencies Above Insurers... Foreseen Disaster of 'Super Gapjil' (Comprehensive)

Abusing Superior Position to Cover Dinner and Overseas Travel Expenses
Violations Aimed at High Commissions... Regulatory Sanctions Ineffective
Migratory Agent Scams Lead to Increase in Incomplete Sales

[Editor's Note] It is no exaggeration to say that South Korea's insurance industry, which ranks sixth in the world in scale, owes its growth to the sales efforts of insurance planners. Starting from informal sales through acquaintances, it has grown into corporate insurance agencies (GA) specializing in sales. GAs, which can sell all insurance companies' products, have experienced remarkable quantitative growth but have also faced criticism as unhealthy sales actors aiming for commissions. Asia Economy analyzes the problems of GAs and seeks solutions for the insurance market, which has reached growth limits through innovation.

[Series]

① Illegal sales by GAs, insurance companies also responsible

② GAs undermining insurance trust

③ GAs need to enhance sales expertise

[Asia Economy Reporter Oh Hyung-gil] Insurance corporate agency A (GA) demanded travel expenses from 27 insurance companies with contracts in 2016 to send 630 outstanding planners on an overseas trip to Cebu, Philippines, and received several hundred million won. This demand continued in 2017 and 2018 when they traveled to Thailand and Guam. The travel expenses received by this GA from insurance companies over three years amounted to tens of billions of won.

Planner B, who worked at the GA, falsely claimed that 11 insurance contracts recruited over 10 months from November 2016 to August 2017 were recruited by planner C, who belonged to the GA, and received a recruitment commission of 7 million won. Under the current Insurance Business Act, insurance planners are prohibited from recruiting insurance under another planner's name. B was fined 5.1 million won for this violation.

Planner C, who was a representative of a small GA, was found to have paid commissions of 2.1 million won for seven life insurance cases to a person who was not a planner and was sanctioned with a fine. Afterward, C moved to a large GA and has continued to work as an insurance planner.

Large insurance corporate agencies (GAs) are known as 'super bosses' in the insurance market. This is because the annual performance of insurance companies depends on GAs that have high-performing planners. Since GAs with high-value planners and insurance companies are linked in a dominant-subordinate relationship, unfair demands and power abuse using superior positions are openly practiced.

Higher commission demands are basic, and they even cover expenses for dinners, overseas trips, and golf rounds. Competition among GAs to scout planners is fierce, leading to frequent job changes depending on conditions. This results in frequent cases of incomplete sales and orphan contracts. The financial supervisory authorities' sanctions have not improved these practices, according to industry complaints.

◆ GAs with many top planners... a black hole of incomplete sales = In the mid-2000s, GAs that sell products from most life and non-life insurance companies, not just a specific company, emerged and were expected to grow into 'insurance department stores.' However, they have degenerated into the main culprits eroding insurance trust due to violations such as creating false contracts on an organized and large scale to earn commissions.

The Financial Supervisory Service recently detected violations of the current Insurance Business Act by 18 GAs and their planners, including failure to explain insurance products and failure to obtain handwritten signatures from policyholders, and imposed sanctions. Some GAs received business suspension orders of 90 and 60 days, in addition to fines amounting to tens of millions of won.

Planner A of Woosung Asset Insurance Agency violated the obligation to explain insurance products during the recruitment of 12 contracts and even signed on behalf of a client in one case, which was detected by authorities. A received a 90-day business suspension. Also, Korea Financial Center, which received a 60-day suspension, was found to have two planners who misinformed policyholders about product details in 31 insurance contracts recruited in 2015.

A-plus Asset Advisor, a GA, was fined the highest amount of 83.6 million won. Seven planners belonging to it violated the obligation to explain insurance products in the recruitment of 54 insurance contracts.

The current Insurance Business Act prohibits insurance planners from providing false information or withholding important information about insurance products to policyholders or insured persons. However, practices such as creating false contracts worth tens of billions of won to inflate sales, arbitrarily using recruitment commissions obtained by fraud, and exploiting commissions and surrender refunds through arbitrage by canceling insurance after recruitment are widespread.

Recently, most GAs have been expanding their organizations into branch-type alliances to increase commissions, but since individual branches perform all tasks without the headquarters' control, there are concerns that management and supervision are inevitably lax.

◆ Producing transient and 'eat-and-run' planners... half of planners leave within a year = The incomplete sales ratio of GAs slightly decreased from 0.36% in 2016 to 0.28% in 2017 and 0.21% in 2018. However, it remains higher than home shopping (0.17%), insurance companies (0.12%), and bancassurance (0.04%).

The primary cause of rampant incomplete sales by GAs is the bias in insurance information. According to the '2018 Life Insurance Propensity Survey,' 84.4% of insurance consumers cited 'insurance planners' as their source of product information. Although all insurance companies are strengthening their digital business sectors, the proportion of information obtained through internet searches (13.1%) or insurance company websites (7.9%) remains very low.

The motivation for subscription was 'planner recommendation' at 42.6%, higher than specific incident occurrence (26.5%) or general awareness of necessity (22.3%). This means that most insurance subscribers obtain information and motivation from planners, creating a financial environment where planners can easily provide incorrect information or misuse information intentionally.

Frequent job changes by planners also lead to incomplete sales. Customers trust planners when subscribing to insurance but cannot find their planner when management is needed. As of the first half of last year, the retention rate of planners in the top five GAs by number of planners was only 54.4%.

According to the Financial Consumers Federation, the survival rate of life insurance planners after joining (registration retention rate at 13 months as of the first half of 2019) is only 38.2%. This means six out of ten planners leave within one year of joining. By length of service, less than one year is 29.1%, 1-2 years 16.1%, 2-3 years 9.0%, 3-4 years 5.9%, 4-5 years 4.2%, and over five years 35.6%.

Bae Hong, director of the Insurance Department at the Financial Consumers Federation, criticized, "The life insurance industry has recruited insurance planners under the slogan of nurturing experts, but in reality, it has grown through an outdated sales method of recruiting contracts through relatives or acquaintances and discarding them once the 'juice' is squeezed out."