Insurance Companies' 'Unfair Transfer Contracts', Strengthening Agency Responsibility

Examples of Unfair Sublease Contracts. Source=Financial Supervisory Service

In the recent excessive competition within the insurance industry, 'unfair replacement'?where agents encourage consumers who are already insured to switch to the same or similar insurance under the pretext of insurance remodeling or coverage enhancement?is rampant. While agents receive sales commissions, consumers are highly likely to suffer financial losses and coverage interruptions.

Accordingly, financial authorities plan to strengthen institutional sanctions (such as suspending the operations of corporate insurance agencies) to hold GAs more strictly accountable for managing their affiliated agents. In addition, they intend to significantly increase the level of penalties, including registration cancellations, for intentional violations.

On the 24th, the Financial Supervisory Service (FSS) announced these measures while providing guidance on major illegal activities and sanction cases to establish order in GA operations, including cases of violations of the prohibition on unfair replacement contracts and future plans.

In January, financial authorities, the insurance industry, and the Credit Information Agency established a comparison guidance system that allows checking insurance contract information from other companies to prevent unfair replacement contracts. With the system in place, agents can more easily verify customers' insurance contract information from other companies, and the FSS can also monitor whether comparison guidance regarding other companies' insurance contracts is being properly conducted.

An FSS official explained, "This can prevent damages caused when insurance policyholders, unaware of the status and details of their existing insurance contracts, cancel them and subscribe to new contracts with similar coverage. It also enables agents to provide more thorough comparisons and explanations, while significantly reducing the risk of unintentionally becoming perpetrators of illegal acts (unfair replacement contracts)."

In cases of unfair replacement, within six months from the termination date of the existing insurance contract, it is possible to request the reinstatement of the existing contract and cancel the new insurance contract. If the insurance company's response is inadequate, complaints can be filed with the FSS.

According to the FSS, from 2020 to 2023, over four years, fines totaling 520 million KRW and institutional warnings or cautions were imposed on 10 GAs for violations of the prohibition on unfair replacement contracts. Additionally, two affiliated executives received notifications of illegal acts after resignation and cautions, and 110 agents were subjected to work suspensions (30 to 60 days) and fines ranging from 500,000 to 31.5 million KRW.

An FSS official stated, "We plan to strengthen ongoing monitoring related to replacement contracts and promptly conduct on-site inspections of GAs with excessive settlement support payments and a high number of suspected unfair replacement contracts to restore market order."