[Issue Interview] Kim Yongtae, Chairman of Insurance GA Association, "Industry Voices Must Be Reflected in Sales Commission Reform Plan"

"Disclosing Sales Commissions Is Like Demanding Companies Reveal Their Costs"
"Paying Commissions in Installments Will Cause an Average Loss of 8 Million KRW per GA Agent"
"Introducing Insurance Sales Specialized Companies Will Enhance Consumer Rights and Create More Jobs"

The corporate insurance agency (GA) industry is strongly opposing the insurance sales commission reform plan being promoted by financial authorities. The Korea Insurance Agency Association (Insurance GA Association), which represents the GA industry, recently formed an emergency response committee and launched a signature campaign against the plan. It seems unlikely that the conflict between the authorities, who want to assign responsibilities commensurate with the enlarged GA scale, and the GA industry, which aims to protect the survival rights of its agents, will be resolved in the short term.

Kim Yong-tae, President of the Korea Insurance Agency Association (Insurance GA Association). Provided by Insurance GA Association

Kim Yong-tae, Chairman of the Insurance GA Association: "The Sales Commission Reform Plan Is Detached from Reality"

Kim Yong-tae, chairman of the Insurance GA Association, said in an interview with Asia Economy on the 25th, "The sales commission reform must be approached with caution, and the voices of the key stakeholders, the GA industry, must be actively reflected," adding, "If the system is introduced hastily without reflecting reality, all 280,000 GA-affiliated agents will be doomed." Kim, a three-term former member of the National Assembly and former chairman of the Political Affairs Committee, took office as the 7th chairman of the Insurance GA Association in 2023 and has been voicing the industry's concerns.

The authorities' sales commission reform plan focuses on ▲disclosure of sales commission information ▲payment of sales commissions in installments for up to seven years ▲application of the 1200% rule to GA-affiliated agents.

GAs sell insurance products created by insurers such as Samsung, Hanwha, and Hyundai on their behalf and receive sales commissions and incentives. There have been many criticisms that GA agents tend to recommend products with higher commissions to customers, reducing consumer benefits. The authorities believe that transparent disclosure of commissions will reduce such problems.

Chairman Kim opposed the disclosure of commissions, equating it to requiring companies to disclose product costs. He argued that the commissions received by GA agents are the actual costs of providing service for insurance subscriptions. He said, "For example, in the food industry, only the list of ingredients is shown on the back of snacks, but the price of each ingredient and the profit margin added are not disclosed," adding, "No company discloses its costs, so it is unfair to require only GA agents to disclose theirs."

Until now, the sales commissions received by GAs were paid within one to two years of the insurance contract. The authorities viewed this method as a cause of low contract retention rates and unfair switching (insurance replacement). Therefore, they are promoting a plan to introduce maintenance and management commissions paid monthly in installments over three to seven years.

Chairman Kim estimated that if commissions were paid in installments over five years, each GA agent would suffer an average loss of 8 million KRW. This calculation considers loans and opportunity costs to cover the shortfall. He said, "The authorities want to hold GAs responsible for the low insurance retention rate, but maintenance costs are reflected in the insurers' business expenses within insurance products," adding, "Insurers receive the maintenance costs, so it makes no sense for GAs to bear responsibility for the decline in maintenance costs."

Kim criticized the authorities' plan to apply the 1200% rule to GA agents as "a decision that does not properly consider reality." The 1200% rule limits the sales commissions (including incentives) that insurers can pay agents in the first year of an insurance contract to within 12 times the monthly premium. It is a measure to prevent excessive commission competition.

Kim pointed out that fixed costs should be separately excluded when applying the 1200% rule. He explained, "Insurers include fixed costs such as rent, operating expenses, and training costs in business expenses and pay commissions up to a maximum of 1200% excluding these," adding, "Since GAs incur similar costs, these should be excluded when applying the rule." Currently, GAs receive sales commissions and incentives from insurers and, as a practice, exclude some fixed costs such as company operating expenses when paying commissions to agents. Fixed costs account for about 20% of the paid commissions.

Kim Yong-tae, President of the Korea Insurance Agency Association (Insurance GA Association). Provided by Insurance GA Association

"Insurance Sales Specialized Company, Authorities Begin Research for Legislation"

The GA industry's long-standing wish is the introduction of insurance sales specialized companies. Unlike existing GAs, which only act as agents for concluding insurance contracts, insurance sales specialized companies mediate contract conclusion. If a GA meets the conditions and becomes an insurance sales specialized company, it will be assigned responsibilities at the level of financial companies. In return, it gains the authority to negotiate business expenses and commissions with insurers.

Chairman Kim announced in his New Year's address that he would promote legislation for insurance sales specialized companies within the first quarter. Regarding the current delay in legislation, Kim said, "Although somewhat delayed, at the insurance reform meeting held on the 11th, the financial authorities promised to soon begin research for legislation," adding, "Since Financial Services Commission Chairman Kim Byung-hwan also hinted at the introduction of this system, its implementation is not far off."

Currently, GAs are classified as other service industries. Kim believes that if GAs become insurance sales specialized companies, they will advance into genuine insurance sales specialized financial firms. He said, "Insurance sales specialized companies will focus not only on the insurance product sales stage but also on insurance claim consultation and claim agency services to protect consumer rights," adding, "They will also create many high-quality professional consultant jobs in the financial sales sector."

The Insurance GA Association is currently developing a GA credit rating model in cooperation with NICE Credit Rating. The development is scheduled to be completed by the end of the year. Once GAs secure credit ratings, they can issue corporate bonds or convertible bonds under the Capital Market Act. Initial public offerings (IPOs) are also expected to become more active. Kim said, "Last year, several GAs conducted pilot programs, and this year, a few more companies will participate," adding, "Once GA credit ratings are established, reasonable governance, sound capital adequacy, and transparent accounting will be achieved during the transition to insurance sales specialized companies."