Insurer's 'Virtual Account Internal Control Improvement Plan' Faces Obstacles
[Asia Economy Reporter Oh Hyung-gil] The Financial Supervisory Service's plan to verify actual depositors in virtual accounts used for insurance premium payments to prevent unfair solicitation through proxy payments is facing setbacks.
This comes as the Financial Services Commission (FSC) has interpreted that financial institutions cannot provide depositor information of virtual accounts to third parties. This appears to be another case of discord between the FSC and the Financial Supervisory Service (FSS).
According to the insurance industry on the 19th, the FSS is pushing forward with a plan to inspect the internal control status of insurance companies' virtual accounts, targeting the second half of this year. To this end, they had planned to build a system that allows banks and insurance companies to review virtual account information provided to customers for easy insurance premium payments.
The idea was to receive information about actual depositors of virtual accounts from banks and verify whether it matches the insurance contract information to check for proxy premium payments. Since virtual accounts allow depositors to arbitrarily enter their names upon deposit, insurance planners or others have exploited this to make premium payments under the contract holder's name instead of the actual contract holder.
When planners pay premiums via virtual accounts, the contract retention rate is very low. While the two-year retention rate for long-term insurance contracts across all non-life insurers is 70.6%, the retention rate for contracts with six consecutive payments made by planners into virtual accounts is only 34.0%. This suggests a significant amount of unfair solicitation.
Some insurance companies have operated their own control mechanisms, such as restricting premium collection when deposits are made under planners' names, but these have been ineffective due to the inability to obtain account holder information from banks.
The FSC has recently put the brakes on the FSS's plan.
The FSC recently judged that the actual depositor name information for virtual account deposits is unlikely to be information subject to provision under the "Act on Real Name Financial Transactions and Confidentiality." Under the current Real Name Financial Transactions Act, financial companies can provide information or data about financial transactions to third parties (insurance companies) only with the depositor's written request or consent.
The FSC explained, "Virtual accounts are computer codes in the form of account numbers issued by banks to corporations with which they have a transaction relationship for customer management purposes," and "it is difficult to consider that a financial transaction has occurred before the insurance premium deposited into the virtual account is transferred to the insurance company's real-name account."
In other words, while banks can provide information about actual depositors of the insurance company's real-name accounts, virtual accounts are not considered financial transactions eligible for information provision, so banks cannot provide such information.
As a result, the FSS's plan to review depositor information of virtual accounts is likely to be scrapped. An FSS official stated, "The FSC's interpretation means that depositor information cannot be provided at the stage before the deposit is transferred from the virtual account to the insurance company's main account," adding, "We will consider ways to verify information after the deposit is made to the main account."
However, the insurance industry points out that even this may be ineffective. An industry insider said, "If a planner deposits insurance premiums at a counter for customer convenience, there is no way to verify the actual depositor afterward," and added, "According to the FSC's interpretation, it is practically impossible to identify virtual account depositors."
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