[In-Depth Look] Insurance Companies Need Awareness Improvement, Consumers Should Study

Byeon Hyewon, Research Fellow at the Korea Insurance Research Institute

Despite insurance companies' efforts to protect consumers, it appears that the level of consumer protection expected by consumers still falls short. Various systems have been introduced in the insurance market to prevent incomplete sales, such as the suitability principle for variable insurance, happy calls, the insurance planner recruitment information inquiry system, and measures related to incomplete sales in home shopping insurance. In fact, the rate of incomplete sales has significantly improved since 2011. However, according to the 2018 National Survey on Financial Consumer Protection Awareness, about 68% of respondents believed that financial companies lack sufficient ethical awareness, and only about 51% responded that financial companies offer products suitable for customers' situations.

To identify the cause of the gap between insurance companies and consumers, it is necessary first to examine the insurance product sales sites and insurance claim payment sites. These two points, where consumers interact most with insurance companies, are likely critical moments in forming trust in the insurer.

First, let's look at the sales site. A compensation system for insurance sellers designed based on short-term sales performance for quantitative growth and a sales culture that tolerates unhealthy practices for results can lead to incomplete sales and contract replacements. Consumers who experience this will distrust not only the seller but also the insurance company, and may even develop skepticism about insurance itself. In fact, there have been numerous complaints where some insurance sellers recommended whole life insurance, which has higher sales commissions than pension insurance, to consumers interested in pension insurance by explaining and selling whole life insurance with a pension conversion rider as if it were pension insurance.

Next, let's examine the insurance claim payment site. While denial or delay of insurance payments causes consumer dissatisfaction, the root cause of complaints is more likely the lack of consistency or transparency in payment decisions rather than the denial or delay itself. Recently, there was a case where a loss adjustment company was institutionally warned after it was discovered that the company's performance evaluation reflected insurance claim reductions. If insurance claims are reduced without valid grounds or sufficient explanation, it will lead to consumer disputes.

So, what efforts are needed to improve these issues? First, insurance companies should review and improve whether the seller compensation system conflicts with consumers' understanding. Also, since people are greatly influenced by the norms of the groups they belong to, a revolutionary renewal of the sales culture is necessary to strengthen seller responsibility and ethical awareness. Recently, the influence of external sales channels unfamiliar with financial regulations, such as financial platforms, has been expanding in the insurance market. Financial authorities need to strengthen supervision of sales activities to induce responsibility not only from insurance companies but also from external insurance sales channels.

Second, consistency and transparency in insurance claim payment reviews must be improved, and internal control over outsourced loss adjusters should be strengthened. It should be kept in mind that successful insurance claim payment services can induce consumer satisfaction, which can improve trust in insurance companies and, ultimately, insurance itself.

Finally, consumers' insurance literacy should be improved. As stated in the Financial Consumer Protection Act, financial consumers, as participants in the financial market, should not only correctly select financial products and justly exercise their rights but also strive to acquire the necessary financial knowledge and information to promote their interests.

Insurance companies should actively develop methods to raise consumer awareness and enhance understanding using information and communication technology (ICT) so that consumers can make informed decisions and fully enjoy the insurance services they purchase. They should also consider ways to use MyData to provide explanations to consumers during contract maintenance about the possibility of insurance claim submissions or coverage.