Detailed Commission Rates by Sales Channel and Product Category Disclosure
Maintenance and Management Fees Paid Monthly in Installments
Sanctions for Irresponsible Business Expense Execution
The period for distributing insurance product sales commissions provided by insurance companies to agents will be extended. Additionally, the '1200% rule' will also apply when corporate insurance agencies (GA) pay sales commissions to their affiliated agents.
On the 17th, the Financial Services Commission and the Financial Supervisory Service announced that they discussed the 'Direction for Reforming Insurance Sales Commissions' at the 5th Insurance Reform Meeting.
Until now, insurance companies have adopted an advance payment method, paying most of the commissions within the first 1-2 years of the contract to encourage agents to actively sell insurance products. Even though the contract period for the subscribed insurance is 10-20 years, commissions were fully paid in the first 1-2 years, which tended to cause agents to neglect maintaining and managing the contract after the insurance contract was signed. Going forward, if the recruited contract is maintained normally, maintenance and management commissions will be paid in installments over 3-7 years (tentatively) to encourage long-term maintenance and management of insurance contracts. To prevent excessive payment of maintenance and management commissions, the payment limit has been separately set at around 1% of the contract conclusion cost per month.
The related system will also be completely revamped to ensure that sales commissions are executed for the purpose of charging business expenses. Recently, some insurance companies have been using contract management costs for maintenance and management fees as sales commission resources in addition to contract conclusion costs allocated for contract conclusion purposes in insurance products. Excessive commissions act as a factor in premium increases. Going forward, advance commissions for protection insurance will be improved to be executed within the contract conclusion costs imposed on individual products. As a result, some agents' income may decrease in the short term, but in the mid to long term, the contract maintenance and management rate will increase, leading to income stabilization effects.
The 1200% rule, which was only applied to insurance companies, will be expanded to GAs. The 1200% rule limits the total commission an agent can receive in the first year after concluding an insurance contract to within 12 times the monthly premium. The settlement support funds, which have caused agent scouting competition and unfair replacement, will also be included within the 1200% rule limit. However, considering that GAs use part of the sales commissions to cover internal control organization and personnel operating costs (compliance costs), a certain limit (3% of the monthly premium annually) will be excluded from the 1200% rule.
In addition, insurance companies must establish a 'principle for charging appropriate business expenses' to set appropriate business expenses. They must review and verify the appropriateness of business expense levels by product through their own product committees and report the results up to the CEO.
To allow consumers to accurately check product sales commissions, information on the product's commission rates must be provided when soliciting insurance subscriptions. Detailed commission rate information by sales channel and product group must also be disclosed.
Since the reform of sales commissions significantly affects agents, GAs, and others, the financial authorities plan to hold briefing sessions in the first quarter of next year to gather sufficient opinions before finalizing the sales commission-related measures.
Kim So-young, Vice Chairman of the Financial Services Commission, said, “This improvement plan will enable increased consumer satisfaction, stable income for agents, and stabilization of insurance sales channels,” adding, “We will fundamentally improve the commission system and work to restore public trust and establish sound order.”
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