Insurance Companies Letting Go of Agents... "Commission Competition Backfires"

Pursuing Organizational Efficiency through Separation of Manufacturing and Sales
"Increased Dependence on GA... Business Expenses Expected to Rise"

[Asia Economy Reporter Oh Hyung-gil] Insurance companies are set to establish sales-specialized subsidiaries one after another next year. The strategy aims to enhance organizational efficiency by transferring exclusive agents to subsidiaries and separating the manufacturing and sales of insurance products. The movement of agents leaving insurance companies to join corporate agencies (GA) is expected to accelerate further.

As sales from exclusive agents decline, reliance on GAs will inevitably increase, raising concerns that business expenses will escalate due to commission competition.

According to the insurance industry on the 26th, three insurance companies have officially announced the establishment of GA subsidiaries just this month. Hyundai Marine & Fire Insurance recently decided at a board meeting to establish a subsidiary-type GA next year. A task force (TF) to strengthen channel competitiveness will operate until March or April next year, during which plans for operating the subsidiary GA will be discussed.

Mirae Asset Life Insurance has launched a Channel Innovation Promotion Team and plans to transfer about 3,300 exclusive agents, including its own FCs and CFCs, to its subsidiary-type GA, 'Mirae Asset Financial Services,' thereby separating manufacturing and sales channels.

Hanwha Life Insurance also officially announced the launch of a sales-specialized company in April next year. CEO Yeo Seung-joo recently stated in an internal management sharing session, "We will create a sales-specialized company with the best competitiveness in Korea by combining Hanwha Life’s differentiated financial planner (FP) education system, nurturing system, and various welfare benefits unique to Hanwha Life," and pledged to continuously expand its affiliated FPs.

Some insurance companies have already created subsidiary GAs and are expanding their organizations. Shinhan Life Insurance established a 100% subsidiary, 'Shinhan Financial Plus,' in August and is securing sales channels by partially acquiring the organization of the large GA, Leaders Financial Sales.

[Image source=Yonhap News]

Agent Movement Triggers Orphan Contracts... 'Customer Management' Red Alert

This trend is closely linked to the recent expansion of non-exclusive channels.

In the life insurance market, the sales proportion of agents sharply declined from 62.9% in 2000 to 11.1% last year. In non-life insurance, GA sales also recorded a high level of 44.3%. Some non-life insurers rely on GAs for more than 70% of their individual insurance sales.

The insurance industry expresses difficulty in keeping up with GA competitiveness in the sales market. GAs have excellent customer accessibility as they can compare and sell products from multiple insurers. Therefore, insurers must secure capable GAs. This inevitably leads to overheated commission competition.

A report titled 'Diagnosis and Tasks of the Insurance Industry' by the Korea Insurance Research Institute pointed out that while insurers expected cost reduction and sales efficiency by utilizing non-exclusive channels, the side effect of increased business expenses occurred due to overheated commission competition aimed at short-term sales expansion.

In particular, the actual business expense ratio for long-term non-life insurance has been on the rise since recording 14.6% in 2016, reaching 19.1% last year.

The overheated recruitment commission competition triggers agent movement, deteriorates insurers’ recruitment productivity, causes orphan contracts, and seriously hampers customer management, disrupting the insurance sales ecosystem.

The report stated, "When many substitutes exist in the market, efforts to strengthen relationships with customers and differentiate are necessary, but many insurers choose commission competition that yields quick results in the short term. Overheated recruitment commission competition leads to agent turnover and lower contract retention rates, causing increased costs and productivity decline for insurers and negatively impacting consumer protection."