Most Illegal During Sales Process... Poor Internal Controls
[Asia Economy Reporter Oh Hyung-gil] It has been revealed that an insurance planner affiliated with Samsung Life Insurance embezzled customer insurance premiums amounting to 400 million KRW over seven years. Planner A was caught using the premiums received from customers personally without paying them to the company from April 2010 to June 2017. The embezzled amount totaled approximately 421.42 million KRW.
A received insurance premiums in cash by visiting customers and exploited a universal product that maintains the contract even if premiums are not paid for a certain period, making it difficult for customers to detect the embezzlement in advance. Samsung Life Insurance is restoring customer damages to their original state and is proceeding with recovery procedures, including claiming subrogation rights against A.
The scale of financial accidents occurring within insurance companies has been estimated at 60 billion KRW over the past four years. Deviations by insurance company employees or affiliated planners stemming from moral hazard and the failure of internal controls to detect these in advance are identified as chronic causes of financial accidents.
According to the Financial Supervisory Service on the 6th, the amount of financial accident damages in insurance companies from 2017 to last year totaled 55.4 billion KRW, including 11.6 billion KRW in life insurance and 43.8 billion KRW in non-life insurance.
The trend of financial accidents in insurance companies has been on the rise in recent years. After the 310 billion KRW financial accident caused by the default on a meat-collateralized loan at Tongyang Life Insurance in 2016, the damage amount decreased to 3.5 billion KRW in both life and non-life insurance in 2018. However, damages continued with 26.2 billion KRW in 2019 and 14.3 billion KRW in 2020, indicating ongoing financial accidents.
Fraudulent Contract Recruitment Commission Embezzlement
Changing Contract Holders and Policy Loans
Looking at major cases, most illegal activities occur during the sales process. In August last year, it was revealed that the head of Chubb Life Insurance led the creation of fake contracts from September 2016 to April 2018, embezzling approximately 900 million KRW in recruitment commissions. Chubb Life also suffered a loss of 300 million KRW in July due to false contracts by a corporate agency (GA).
KB Non-Life Insurance also detected a planner who, from 2017 to last year, arbitrarily changed contract holders without the consent of the insured and took out policy loans, embezzling 353 million KRW.
In 2019, Mirae Asset Life confirmed that a GA representative who signed sales contracts did not actually conduct sales but embezzled 300 million KRW in commissions through false contracts, leading to strengthened internal controls related to GA partnerships. NH Nonghyup Life also experienced damages of 536 million KRW caused by a local Nonghyup employee using copies of customer IDs to take out insurance policy loans and early withdrawals; a lawsuit for damages was filed against the local Nonghyup, resulting in a partial victory.
Although not leading to financial accidents, illegal recruitment activities led by planners have also been frequently detected recently. The Financial Supervisory Service recently imposed sanctions such as registration cancellation or up to 180 days of business suspension on 26 current and former insurance planners from major insurance companies and insurance agencies caught in insurance fraud.
Among them, one planner submitted a false medical certificate for 'balanoposthitis,' claiming that his son underwent circumcision and received treatment for the disease, which is not covered by the policy, collecting a total of 7.6 million KRW from three insurance companies.
Another insurance planner claimed 1 million KRW from five insurance companies by reporting that his mobile phone screen was broken after dropping it during a trip. There was also a planner who conspired with acquaintances to deliberately collide his vehicle with an acquaintance’s vehicle, staging a traffic accident to collect 14.63 million KRW in insurance money.
The problem is that among these financial accidents, cases where the actual damages were recovered are rare. Because the detection of illegal acts is delayed, the embezzled money is often already spent or secretly withdrawn in advance. This is why there are criticisms that institutional measures to detect financial accidents early in the sales field are insufficient.
An insurance industry official said, "Since planners directly manage customers based on personal relationships, it is difficult for third parties to verify or detect fraud," adding, "With the economic downturn, planners’ incomes have decreased, making them more susceptible to temptations of insurance fraud or misconduct."
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