Financial Services Commission Holds 5th Insurance Reform Meeting
Improvement of Underwriting Standards for Fetal Insurance Contracts
Enhancement of Insurance Product Explanation Methods to Prevent Mis-selling
The financial authorities will improve insurance underwriting standards to prevent unreasonable rejection of insurance applications due to reasons such as multiple births like triplets. The method of explaining insurance products will also be completely revamped to prevent incomplete sales.
On the 16th, the Financial Services Commission held the 5th Insurance Reform Meeting to discuss current issues in insurance sales channels, directions for reforming insurance sales commissions, and reform plans for indemnity insurance. The meeting was chaired by Kim So-young, Vice Chairman of the Financial Services Commission, and included participation from academic societies such as the Financial Consumer Society, related organizations, research institutes, insurance companies, and the Insurance Association.
As part of measures to support low birth rates, the Financial Services Commission will improve underwriting standards for fetal insurance for multiple births of triplets or more. Some insurance companies have previously rejected or limited underwriting for fetal insurance for multiple births, citing higher risks such as complications. Going forward, if no insurance incidents have already occurred, insurance companies will underwrite 100% of the insurance contracts. However, if the risk of an insurance incident has already occurred at the time of application, rejection of insurance enrollment is possible. The improvement of fetal insurance underwriting standards is expected to be implemented around January next year.
The Return of Superman Triplets. Photo by KBS2
Customized guidance will be provided to help consumers easily claim unpaid insurance benefits, which have a low payout rate. Unpaid insurance benefits by insurance companies increased from 7.8 trillion KRW in 2019 to 9.4 trillion KRW in 2023. Going forward, accessibility will be enhanced by preparing dedicated guidance letters for elderly consumers. The guidance letters will accurately state the credited interest rates to encourage voluntary refunds from consumers with low credited interest rates.
Systems to prevent incomplete sales will also be improved. The formal obligation to explain insurance products, which has been pointed out as one of the causes of incomplete sales, will be enhanced. Institutional improvements to prevent unfair solicitation will also be pursued.
There have been many criticisms that consumers do not properly understand the product contents when purchasing insurance products due to difficult terminology and simple, list-style explanations. Therefore, the method of explaining insurance products will be reorganized based on four basic directions: simplification, visualization, digitalization, and standardization. Contract confirmation items (such as overwriting) scattered across various application documents, which had low effectiveness, will be consolidated into a single 'Insurance Product Understanding Confirmation Form' to provide detailed explanations to consumers. Additionally, product disclosure items will be reorganized to match consumer perspectives and improve comparability between products. A separate practical task force (TF) will be formed to prepare detailed improvement plans for revising explanatory materials for each product.
To expand consumer choice, the obligation of corporate insurance agencies (GA) to compare and explain products will also be strengthened. There have been criticisms that some GAs perform product comparison and explanation obligations only formally. If consumers request comparison and explanation of certain insurance products, these must be included in the comparison. When recommending a specific product, agents must explain the reasons for their recommendation and are required to keep records. Information on sales commissions for each compared product will also be separately provided to prevent conflicts of interest in sales channels attempting to recommend high-commission products and to enhance the choice rights of insurance contract holders. This is expected to improve practices such as high-commission product sales and biased sales toward specific companies.
The comparison guidance system will also be advanced to prevent unfair solicitation. Instead of information on surrender refunds, which has been criticized for encouraging unfair solicitation, the system will be reorganized to compare refund rates. In addition to the previously compared announced interest rates, other comparison items such as expected interest rates will be added.
Measures to induce sound management of insurance companies will also be promoted. Reflecting the implementation of the International Financial Reporting Standard (IFRS 17), the differential premium rate system for the policyholder protection fund will be reviewed so that insurance companies operating with high appropriateness in actuarial assumptions and reasonable product sales systems can bear relatively lower policyholder protection fund premiums. The policyholder protection fund is an annual premium paid by financial companies to the Korea Deposit Insurance Corporation (KDIC). Going forward, insurance companies that faithfully implement reform tasks linked to the Insurance Reform Meeting agenda will pay lower premiums.
The scoring for the existing insurance claim loss ratio indicator will also be expanded to strengthen insurance companies' management of actuarial assumptions. To improve the appropriateness of cash flow estimation, methods to evaluate the volatility of the Contractual Service Margin (CSM) and to assess the appropriateness of new contract expenses to prevent excessive competition will be reviewed. Furthermore, product review standards will be revised to prevent the design of stepwise products that pay insurance benefits differentially based on annual medical expenses, including both covered and non-covered medical expenses. This is to prevent excessive medical practices aimed at receiving high insurance payouts.
To establish a sound market order, self-regulation will also be strengthened. To enhance the effectiveness of mutual agreements for maintaining fair order, amendments to the Insurance Business Act will be pursued to allow integrated mutual agreements between life and non-life insurers and GAs. Regarding insurance agent exams, which have recently been controversial due to proxy test-taking and fraudulent activities, zero tolerance and criminal prosecution measures will be taken against serious violations, and personnel actions and strengthened managerial responsibilities will be required for fraudulent acts by agents and employees.
At the meeting, expert committee members of the Insurance Reform Meeting also suggested future tasks for the insurance industry. Discussions included strengthening the pension nature of retirement pensions, enhancing consumer benefits using artificial intelligence (AI), and revitalizing nursing services in response to demographic changes. The tasks discussed will be reflected in the future-oriented tasks currently under discussion by the working group for further review.
Vice Chairman Kim So-young said, "The reform stance must be firmly maintained especially in difficult situations," and added, "We will steadily push forward with the Insurance Reform Meeting tasks, including indemnity insurance reform, according to the original plans and schedules without wavering."
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