'Card Insurance 25% Rule' Puts Market at Risk of Collapse

Among insurance products sold by card companies,
restriction on product share of one insurer
to be gradually introduced from next year
likely challenging due to few participating insurers

[Asia Economy Reporter Ki Ha-young] Financial authorities' decision to implement the 25% rule (sales proportion regulation) on card insurance (insurance sales by card companies) starting next year is raising concerns among card companies. Since there are not many insurance companies utilizing card insurance, there is worry that it will be practically difficult to comply with the 25% rule, potentially leading to the disappearance of the market itself. In fact, from next year, card companies will not be allowed to sell more than 66% of their total insurance sales from products of a single insurance company.

According to financial authorities and industry sources on the 26th, a revision to the Enforcement Decree of the Insurance Business Act, which mainly introduces the 'card insurance 25% rule,' has recently been approved. The 25% rule is a regulation that prohibits a financial institution's insurance agency from having the sales proportion of a single insurance company exceed 25% of the annual insurance product sales. Accordingly, from next year, card companies will not be able to sell more than 66% of their total insurance sales from one insurance company's products. Ultimately, the restriction ratio will be lowered annually, and from 2024, sales must be kept within 25%.

The 25% rule is already applied to banks and others. However, card insurance accounts for only about 0.1% of total insurance sales, and since there are few insurance companies handling it, the regulation has been postponed due to concerns that the market might disappear altogether. In reality, only 3 to 4 small and medium-sized insurance companies actively utilize the card insurance channel, making it difficult to comply with the 25% sales regulation. For this reason, financial authorities decided at the end of last year to grant an additional three-year grace period for the '25% rule' on card insurance.

However, this year, the Financial Services Commission changed direction to induce compliance from card and insurance companies through phased implementation, turning the situation 180 degrees. With market conditions unchanged, the application of the 25% rule has led to forecasts that the card and insurance industries may withdraw from the card insurance business. To meet the sales ratio, at least five life insurance companies and five non-life insurance companies need to handle card insurance, which is difficult given the current conditions. Currently, seven life insurance companies including AIA, LINA, Shinhan, Dongyang, and Heungkuk Life are engaged in card insurance sales, but sales are concentrated mainly on AIA and LINA Life. For non-life insurance companies, only two companies, Ace Insurance and AIG Insurance, handle card insurance. In this case, it is realistically difficult even to maintain 50%.

Since the announcement of the revision in September, the card and insurance industries have requested that the sales ratio regulation be applied by combining life and non-life insurance sales instead of ending the grace period immediately next year, but this was not accepted.

An industry insider said, "Large companies that originally conduct sales through their own telemarketing (TM) channels have low participation in card insurance, and as the insurance sales environment shifts to non-face-to-face, insurance companies have less incentive to participate in card insurance," adding, "Unless new businesses enter the card insurance channel, it will be practically difficult to meet the regulatory ratio."

Another industry insider expressed concern, saying, "Although the market is small overall in the insurance sector, insurance planners affiliated with card companies could face income reduction issues if the card insurance channel is not maintained," and added, "The structure introduces good insurance products only to customers who agree to marketing, so the sales restriction regulation could rather limit consumer choice."