FSS: 3,600 Unfairly Terminated Contracts by GA Agents in Two Years... Strict Sanctions on Unfair Replacements

Stronger Sanctions Including Business Suspension for Unfair Contract Replacements
On-site Inspections of Settlement Support Payments and Improvements in Internal Controls

An investigation has found that corporate insurance agency (GA) agents have unfairly terminated a total of 3,600 existing insurance contracts over the past two years. Financial supervisory authorities have determined that excessive policy support payments have led to a surge in insurance switching (unfair contract replacement) and announced plans to strengthen on-site inspections and institutional sanctions against GAs.

On the 21st, the Financial Supervisory Service (FSS) released the current status of GA agent settlement support payments and the results of on-site inspections of GAs with excessive settlement support payments.

This comes amid concerns that excessive settlement support payments have fueled heated scouting competition to lure agents from other GAs.

According to the on-site inspection results, GA settlement support payments in the first quarter amounted to 100.3 billion won, up 19.7% (16.5 billion won) from the previous quarter. For large GAs with 500 or more agents, the increase was even higher at 21.7% (17.5 billion won).

The FSS has determined that agents who receive excessive settlement support payments are repeatedly encouraging customers to engage in unfair contract replacements in order to meet performance targets. As a result, the FSS has been conducting on-site inspections of GAs with high settlement support payments and a large number of contracts suspected of unfair replacements.

From June 2023 to last month, an investigation of seven large GAs over two years found that a total of 408 agents solicited 2,984 new contracts (an average of 426 per company) while failing to inform clients of important differences between the terminated contracts and the new contracts within six months. This constitutes a violation of Article 97 of the Insurance Business Act.

The seven large GA agents were found to have unfairly terminated 3,583 existing contracts (an average of 512 per company) using these methods.

The FSS on-site inspection also revealed that some GA agents canceled insurance contracts they had personally solicited at their former companies and enticed clients into new contracts with similar coverage at their new companies.

Agents focused on unfair contract replacements after moving to new companies. Of all unfair replacements, 43.1% (1,286 cases) occurred within 180 days of joining a new GA.

There were also agents who provided illegal incentives such as paying premiums on behalf of clients (special benefits), or who created false or fabricated contracts by using the names of acquaintances or others without consent.

To regulate settlement support payments at GAs, the FSS will continue ongoing monitoring of advance payment rates, uncollected payment rates, and agent retention rates. Since May, the FSS has also held meetings with three companies suspected of excessive settlement support payments over a two-month period.

If ongoing monitoring finds a GA disrupting market order through settlement support payments, the FSS plans to conduct on-site inspections. Even if a GA has recently undergone inspection, the FSS will immediately launch a new inspection if problems arise.

For GAs found to have issues with unfair contract replacements, the FSS plans to impose severe penalties such as business suspension. Previously, only individual agents involved in unfair contract replacements were subject to fines or business suspensions, but the FSS now intends to strengthen institutional sanctions.

In addition, the FSS will exclude the application of maximum fine limits and impose the highest level of sanctions allowed under the Insurance Business Act. The Act allows for a fine of up to 10 million won per unfair contract replacement. Both institutions and agents may face license revocation or business suspension for up to six months.

Furthermore, the FSS will include the implementation of 'best practice guidelines for settlement support payment management' in its evaluation of internal controls at large GAs. This will allow the FSS to examine not only the management of settlement support payments but also the state of internal controls related to agent scouting.

An FSS official stated, "We will work with the industry to prevent acts that disrupt market order, such as indiscriminate distribution of settlement support payments and mass production of unfair contract replacements in the GA sector," adding, "In particular, we will impose strict sanctions on unfair contract replacements without any leniency."