Insurance Sales Commissions to Be Disclosed for Comparison Next Year... 'Installment Payments Over 7 Years'

"1200% Rule" to Be Expanded to General Agencies
Sales Commissions to Be Disclosed and Paid in Installments
Stricter Regulations to Prevent Excessive Business Expenses

Starting next year, consumers will be able to compare sales commissions for each insurance product and decide whether to purchase through a new insurance comparison and disclosure system. Insurance planners must receive sales commissions in installments over a maximum of seven years. The so-called "1200% rule" will also be expanded to apply to General Agencies (GAs).

The Financial Services Commission announced on June 1 that it has finalized detailed measures to reform insurance sales commissions as a follow-up to the Insurance Reform Council.

According to the plan, beginning January next year, the sales commission rates for individual products will be compared and disclosed on the websites of the Life Insurance Association and the General Insurance Association. The proportion of upfront commissions and maintenance commissions will also be subdivided and made public.

GAs must explain the sales commission grade and ranking for each product when planners compare insurance products. They are required to provide consumers with a list of multiple insurance companies with which contracts can be concluded, and must include the products of the company selected by the consumer in the comparison and explanation.

Sales commissions for each insurance product will be presented in five levels, ranging from "very high" to "very low."

Sales commissions to planners must be paid in installments over a maximum of seven years. Upfront commissions paid at the beginning of the contract must be executed within 100% of the contract acquisition cost reflected in the product's business expenses. The newly established maintenance commission can be paid annually during the contract maintenance period (up to seven years) within 0.8% of the contract acquisition cost per year.

The longer the contract maintenance period, the higher the total amount of maintenance commission received. In particular, during the fifth to seventh years after contract signing, an additional long-term maintenance commission may be paid.

In addition, starting in the second half of next year, the 1200% rule will apply not only to insurance companies but also to planners affiliated with GAs. The sales commission paid in the first year of the contract will be limited to 12 times the monthly premium. The 1200% rule is a regulation that prohibits receiving first-year commissions exceeding 1200% of the monthly insurance premium.

This is intended to prevent insurance companies from excessively spending business expenses. From next year, insurance companies that overspend business expenses will effectively become subject to institutional sanctions.

The prohibition period for arbitrage transactions will be expanded from the first year to the entire duration of the insurance contract. This is to prevent arbitrage transactions where, due to excessive sales commissions, the sum of commissions and surrender refunds exceeds the total premiums paid.

Starting in 2027, insurance companies will be required to strengthen the role of their product committees to verify the appropriateness of business expenses for each product and report the results of their review to the CEO.

Insurance companies must distinguish common costs from sales commissions. Limits will be set so that, for each item, the portion of business expenses allocated to contract acquisition costs cannot exceed a certain percentage. The intent is to ensure that expenses are executed within the planned range during product design.

The Financial Services Commission plans to complete revisions to insurance supervision regulations related to sales commission reform within the third quarter. If supplementary measures are needed, they will be prepared promptly, and discussions on the second phase of sales system reform, such as the introduction of specialized sales companies, are also planned.

An official from the Financial Services Commission said, "We expect this reform to improve insurance contract retention rates and customer satisfaction, while reducing damages caused by improper contract switching."