Financial Supervisory Service Strengthens GA Inspections and Sanctions... "Promoting Joint Inspections with Insurance Companies"

Penalties for Neglecting Consumer Protection
GA Internal Control Ratings to Be Publicly Disclosed from 1 to 5
"Management Interviews for GAs with Inadequate Internal Control Evaluation"

The Financial Supervisory Service (FSS) plans to intensify inspections targeting corporate insurance agencies (GAs), the largest sales channel for insurance, that have inadequate internal controls, and to strengthen relatively mild sanctions. Since GAs are sales-focused organizations, the FSS intends to penalize those that focus solely on maximizing sales performance while neglecting consumer protection. The policy is to enhance the evaluation of GA internal controls and discipline GAs with deficiencies through interviews with management.

Lee Bok-hyun, Governor of the Financial Supervisory Service, is speaking at a meeting with CEOs of foreign financial companies held at the Fairmont Ambassador Hotel in Yeongdeungpo-gu, Seoul, on the afternoon of the 21st. Photo by Yonhap News

On the 22nd, the FSS announced a plan for continuous monitoring by insurance consumers, financial authorities, and insurance companies, stating that although the market share of GAs is increasing due to the growth of large-scale GAs and subsidiary-type GAs, GA sales practices and internal control levels have not improved.

The FSS diagnosed that illegal and unsound sales practices by GAs and their affiliated planners are occurring continuously and systematically in frontline sales sites. They reported uncovering cases where the CEO directly led the signing of false or fabricated contracts under the names of employees and their families, and cases where planner organizations moved en masse to GAs with inadequate controls after internal controls were strengthened.

The financial authorities plan to disclose GA evaluation grades from 1 to 5 based on the results of the internal control operation assessment of large GAs around March to April.

GAs that receive grades 4 or 5 due to inadequate internal controls will be subject to intensified inspections and strict sanctions depending on the results. The final grade will be individually notified to the respective GA, and improvement plans for vulnerable areas will be requested, along with interviews with management.

The FSS stated that it will expand the organization and personnel of the department responsible for GA internal control inspections and strengthen the standards for sanctions.

According to last year's internal control operation assessment results for large GAs, 48.3% of branch-type GAs received grades 4 or 5. For subsidiary-type GAs, the figure was 21.4%.

Inspections linked to insurance companies will also be conducted simultaneously. This means holding insurance companies accountable for managing GAs. The plan is to conduct joint inspections of insurance companies and their subsidiary GAs or simultaneous inspections targeting large GAs with high sales proportions linked to insurance companies.

In particular, acts that promote or abet excessive competition and unsound sales will be inspected in a three-dimensional manner by linking both insurance companies and GAs.

Furthermore, to eradicate unsound sales practices, the FSS plans to verify past sanctions during the insurance companies' GA sales delegation process and the GA's planner recruitment process. They aim to regulate the assessment of the risk of recurrence of illegal acts to eliminate the practice of changing sales channels to continue unsound sales.

Insurance companies will improve risk management and evaluation systems so that they recognize and manage the risk of GA sales delegation as a significant management risk. Related systems will be established to ensure that insurance companies delegate sales considering the GA's sales soundness, internal control level, and sanction history.

The FSS said, "In the future, the benefits and disadvantages of GAs will become clearer based on their internal control levels and sound management status," and added, "We expect the GA industry to raise internal control levels and take a more proactive approach to consumer protection."