Financial Services Commission and Financial Supervisory Service Hold Insurance Reform Meeting: "Improving Excessive Competition"

Improvement of Excessive Competition and Public Welfare Infringement in Insurance Companies

The Financial Services Commission announced that it held an insurance reform meeting with the Financial Supervisory Service and the insurance industry on the 7th.

At this meeting, they discussed the operation plan for the insurance reform meeting, recent issues in the insurance sector, and future preparedness tasks. Prior to the meeting, the Financial Services Commission and the Financial Supervisory Service conducted a preliminary issue survey from March to April together with related organizations, research institutes, the Insurance Association, and insurance companies.

The financial authorities and the industry shared the major recent problems revealed by the issue survey in the insurance industry. It was pointed out that the introduction of the new international accounting standard (IFRS17) has led to excessive competition and the development of short-term profitability products. It was also mentioned that high commissions in sales channels shift the burden to consumers and that consumer harm such as incomplete sales is increasing. Over-treatment in indemnity insurance and sharp premium rate hikes for good-faith policyholders were also identified as problems.

Kim Ju-hyun, Chairman of the Financial Services Commission (left), and Lee Bok-hyun, Governor of the Financial Supervisory Service.

Meeting participants pointed out that the current insurance industry has not been able to shake off the stigma of being a financial sector with many complaints and is criticized for neglecting consumer protection and soundness management due to cutthroat competition chasing only short-term profits. They also agreed to use this meeting as an opportunity to break the outdated framework of the insurance industry, which has stagnated due to long-standing practices, and to pursue a leap forward and innovation.

Going forward, the insurance reform meeting plans to promote institutional improvements across the entire insurance industry and discover future growth tasks, rather than making piecemeal system supplements. It will be operated with a focus on innovation aimed at restoring trust through consumer protection and strengthening soundness, as well as discovering future growth engines.

They plan to review improvement measures from a comprehensive perspective linking sales channels, accounting systems, product structures, and capital regulations. They intend to establish a foundation for launching innovative insurance services so that insurance companies can proactively prepare for the three major changes of digital, climate, and demographics. Support for liability restructuring to respond to interest rate risks will also be carried out concurrently. For indemnity insurance, which attracts high public interest, diagnosis and improvement measures will be discussed at the insurance reform meeting in connection with inter-ministerial discussions.

The insurance reform meeting plans to form five working groups according to major tasks. The five working groups will be the New Accounting Standards Group, Product Structure Group, Sales Practices Group, Sales Channel Group, and Future Preparedness Group, with experts from the Financial Services Commission, Financial Supervisory Service, Insurance Association, research institutes, and insurance companies participating. For topics requiring comparative and in-depth studies of overseas cases, separate research projects will be conducted to support discussions.

Lee Se-hoon, Senior Deputy Governor of the Financial Supervisory Service, stated, "The biggest current risk is consumer damage caused by unhealthy sales practices in the insurance sector’s sales channels." He added, "In connection with the institutional improvement discussions at the insurance reform meeting, we will closely inspect the risk management status of sales channels such as insurance companies and General Agencies (GA) and strengthen inspections and supervision to control related risks."