Extension of Allowance Recovery Period from 1 Year to 3 Years
Prevention of Fraudulent Withdrawal After 1 Year of Enrollment
Strengthened Monitoring of Sold-Out Marketing
To prevent insurance agents from engaging in arbitrage by receiving commissions through fake contracts, financial authorities are extending the commission recovery period to over one year.
On the 6th, the Financial Supervisory Service announced that it has reviewed the occurrence of arbitrage for each installment throughout the entire period of insurance products (protection-type) and improved the standards for commission and incentive (allowance) payments to a level where arbitrage does not occur.
Arbitrage refers to the act where the total amount of insurance recruitment commissions and fees exceeds the paid premiums, and the insurance company profits from the difference by canceling the contract. This practice has been tacitly tolerated in the industry, with insurance agents seeking allowances (incentives) and insurance companies aiming to increase product sales.
Currently, the recovery period for commissions received by agents after selling insurance products is only one year. If the contract is canceled before the 12th installment payment, the insurance company can recover the commission, but from the second year onward, there is no standard for commission recovery. As a result, arbitrage through cancellations after one year has been rampant.
Accordingly, the Financial Supervisory Service decided to ensure that the total amount of commissions and fees does not exceed the paid premiums and to extend the recovery period to 24 to 36 months. Considering the preparation period for each insurer, the new standards will be applied from June for third-sector insurance (such as health insurance) and from July for life insurance (such as whole life insurance).
Furthermore, anticipating a large influx of false or fake contracts (short sales) before the revision of these standards, related companies have been instructed to prepare prevention measures. The supervisory authorities also plan to continuously monitor this issue.
A Financial Supervisory Service official stated, "We expect that this revision of standards will fundamentally block the inflow of false and fabricated contracts aimed at arbitrage," adding, "We will correct the disorderly insurance sales practices that cause arbitrage and enhance the trustworthiness of the insurance industry."
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