[Becoming an Insurance Insider] The Controversial '1200% Rule' for Agents Amid Effectiveness Debate

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[Asia Economy Reporter Oh Hyung-gil] The so-called '1200% rule,' which limits the first-year recruitment commission cap for insurance planners to 1200% of the monthly premium, has sparked controversy over its effectiveness less than a year after its implementation. Unlike insurance companies, the 1200% rule does not apply to corporate agencies (GA), leading to criticism that it is ineffective.

Criticism of the 1200% rule emerged during the Financial Supervisory Service's national audit. Yoo Dong-soo, a member of the Political Affairs Committee from the Democratic Party of Korea, pointed out that Article 4-32, Paragraphs 1 and 5 of the amended and enforced Insurance Business Supervisory Regulations, known as the '1200% rule,' enacted on January 15 last year, are not properly applied to GA companies, emphasizing the urgent need for system improvement.

The 1200% rule is a regulation that prohibits insurance planners from receiving advance commissions exceeding 12 times the monthly premium in the first year after concluding an insurance contract.

It was introduced to prevent side effects such as fabricated contracts (false contracts), inducement of contract replacement (cancelling existing contracts and signing new ones), the proliferation of transient insurance planners, and incomplete sales that may occur when excessive commissions are paid in advance to planners.

However, it was pointed out that GAs provide commissions in ways other than first-year commissions, rendering such regulations ineffective. They scout high-performing insurance planners through commissions and additional support funds, and a vicious cycle of unfair sales practices centered on commissions continues to cover costs.

In the long term, frequent turnover of planners leads to the generation of orphan contracts and contract replacements.

Representative Yoo criticized the current 1200% rule for regulating only the total amount of first-year commissions and excluding commissions from the second year onward from regulation.

As a result, GAs often demand insurance companies excessively increase second-year payments and request lump-sum payment of second-year commissions at the 13th month.

Yoo said, "Although the 1200% rule was introduced to improve the excessive recruitment commission payment practices and incomplete sales issues, it is applied differently to exclusive sales channels of insurance companies and GA companies, rendering the purpose of the system introduction meaningless. It is necessary to amend the Insurance Business Supervisory Regulations so that the 1200% rule can be applied equally between GAs and planners affiliated with GAs, according to the principle of equal regulation for equal acts."

He added, "Even in advanced overseas insurance markets where price liberalization is common, direct regulation on commissions is often implemented. In particular, New York State in the United States regulates the level and distribution method of commissions by year, and Australia also sets an upper limit on the commission payment rate relative to the annual premium by year."

He emphasized, "If voluntary compliance with the 1200% rule by GA companies is unlikely, in addition to amending the Insurance Business Supervisory Regulations, consideration should be given to introducing regulations on the distribution of insurance sales commissions from the second year onward."

Jung Eun-bo, Governor of the Financial Supervisory Service, stated, "We will work with the Financial Services Commission to improve related regulations," expressing an intention to closely examine the 1200% rule.