[1mm Financial Talk] Legislative Challenges for Insurance Sales Specialist Companies Amid GA Regulatory Policies

GA Industry Pushes Back Against Financial Authorities' Commission Reform Plan
No Progress in Discussions on Insurance Sales Specialist Companies
Legislation Unlikely Within the First Quarter

The introduction of insurance sales specialist companies, a long-standing wish of the corporate insurance agency (GA) industry, is facing difficulties. The GA industry had planned to complete legislation within the first quarter of this year through communication with financial authorities, but recent emphasis by the authorities on regulation rather than fostering GAs has stalled progress in discussions.

Unlike existing GAs that only act as agents concluding insurance contracts, insurance sales specialist companies mediate contract conclusions. When a GA meets certain conditions and becomes an insurance sales specialist company, it is granted roles and responsibilities at the level of financial companies. In return, it gains the authority to negotiate business expenses and commissions with insurers. The GA industry attempted to introduce this system in 2008 and 2015, but it was scrapped due to opposition from insurers.

The momentum for introducing insurance sales specialist companies picked up again starting in August last year. At that time, Kim Byung-hwan, Chairman of the Financial Services Commission, announced at an insurance industry meeting that the introduction of insurance sales specialist companies would be considered, which was welcomed by the GA industry. Subsequently, the Korea Insurance Agency Association (Insurance GA Association) negotiated with the government and pledged to complete legislation for the introduction of insurance sales specialist companies within the first quarter of this year, but the recent atmosphere is not favorable.

The GA industry is expressing dissatisfaction, saying that the financial authorities have recently only presented regulation-focused policies. The main target of criticism is the GA commission restructuring plan that the authorities have been pushing since the end of last year. Commissions are the amounts insurers pay GAs as compensation for recruiting new customers. Previously, commissions were paid upfront within 1 to 2 years, but going forward, they plan to be paid in installments over 3 to 7 years. The intention is to provide incentives for long-term management of insurance customers, but the industry opposes this as excessive interference. A representative of the Insurance GA Association said, "While preparing for the introduction of insurance sales specialist companies, we did not raise major complaints about various regulatory measures such as strengthening internal controls or introducing insurer management and evaluation systems for GAs. However, suddenly, without industry consultation, the commission restructuring plan was unilaterally announced, changing the industry's agenda."

The GA industry acknowledges there are aspects to reflect on, such as inappropriate advertising and some incomplete sales in frontline operations, but they agree that appropriate fostering measures should be introduced alongside, given the growing share of GAs in the insurance sector. The number of planners in large GAs with over 500 employees increased from 178,755 in 2022 to 208,718 last year. Including small and medium-sized GAs, the number of planners steadily increased to 280,000 as of the end of September last year. The influence of insurance sales channels is also shifting from insurers to GAs. The share of GA sales in new life insurance contracts rose from 24% in 2018 to 41.3% in 2022. During the same period, the share for non-life insurers increased from 42.9% to 53.6%, surpassing half. A representative of a large GA said, "GAs are already a major pillar in the insurance industry, but they have not been given a proper place in insurance reform meetings or working group meetings on insurance sector issues. We hope the authorities will listen more to industry opinions and expedite discussions on the introduction of insurance sales specialist companies."

As a protest against the financial authorities' commission restructuring, the GA industry recently pushed for a 'Samsung Life boycott.' This means that if a GA-affiliated planner sells Samsung Life insurance products, the incentive payment would be delayed by one year. This reduces the incentive to sell Samsung Life insurance products on the frontline. It was pressure from the GA industry urging Samsung Life, the top life insurer in Korea, to oppose the commission restructuring plan. This highlights the growing stature of the GA industry. Although no GA has yet implemented the Samsung Life boycott, there remains the possibility of its expansion depending on future developments. An insurance industry insider said, "GAs, which already sell insurance products on behalf of insurers, are the dominant party while insurers are subordinate. If insurance sales specialist companies are introduced, the influence of large GAs will grow even further."