Financial Consumer Protection Agency to Gain Inspection and Sanctioning Authority
Industry Watches Closely as First Agency Head Yet to Be Appointed
Legislation of "One-Sided Binding Force" System Imminent
Ruling Party Preparing Bill
Financial
The insurance industry is on edge as the financial sector moves forward with plans to establish a new Financial Consumer Protection Agency, introduce the principle of unilateral binding force, and overhaul insurance product brochures. The burden on insurers has increased, especially since the insurance sector already faces the highest number of consumer complaints among financial industries, and consumer rights are set to expand further.
According to the financial sector on September 10, the government recently decided to separate the Financial Consumer Protection Bureau from the Financial Supervisory Service and establish it as an independent Financial Consumer Protection Agency. Currently, the bureau, led by Director Kim Miyoung, is divided into two organizations-consumer protection and livelihood finance-with about 500 employees working across 12 departments. Once elevated to an agency, it will gain inspection and sanctioning authority, which it currently lacks, greatly strengthening its consumer protection functions. The first head of the new agency has yet to be appointed.
An image generated by ChatGPT depicting insurance companies feeling burdened by the successive strengthening of consumer protection measures. Image created by ChatGPT.
The insurance industry is not welcoming the idea of the new agency having inspection authority in addition to the Financial Supervisory Service. There are concerns about overlapping inspections and sanctions, as well as the risk of being caught in performance competition between the two supervisory bodies. Insurance is the sector with the most consumer complaints in finance. Last year, out of a total of 116,338 financial complaints, 45% were related to insurance, mainly concerning insurance claim assessments and payments. In front of the headquarters of some insurance companies in Seoul, consumers have set up pickets, banners, and loudspeakers to stage long-term protests over their complaints.
An insurance industry official said, "There could be cases where the Financial Supervisory Service says one thing and the Financial Consumer Protection Agency says another regarding the same issue," adding, "There needs to be a clear division of roles and responsibilities between the two agencies."
Who will be appointed as the head of the new agency is also a major concern for the insurance industry. Currently, Professor Kim Eunkyung of Hankuk University of Foreign Studies Law School is considered the leading candidate. Within the industry, there is a sense of relief at the prospect of Professor Kim, an expert in insurance law, taking the position. This is because she is expected to have a better understanding of industry circumstances than Lee Chanjin, the current head of the Financial Supervisory Service, who has no experience in insurance.
An insurance industry official commented, "Both Lee Eokwon, the nominee for Chairman of the Financial Services Commission, and Lee Chanjin, the head of the Financial Supervisory Service, appear to have no experience in insurance, making it difficult to convey the industry's unique characteristics. Professor Kim, however, is more specialized and is expected to make more rational decisions."
The insurance industry is also closely monitoring the potential legislation of the principle of unilateral binding force, which is included in the Lee Jaemyung administration's national policy agenda. Under this principle, if a dispute arises between a financial company and a consumer, and the consumer agrees to the settlement proposal made by the financial authorities, the financial company must comply unconditionally. If this system is implemented, financial companies will not be able to file additional lawsuits related to the matter. However, this principle is expected to apply only to small-amount disputes, typically between 10 million and 20 million won. The introduction of unilateral binding force would strengthen consumer protection against excessive lawsuits by insurance companies. However, there are concerns that in cases such as car accidents, where disputes arise between insurers over the policyholder's fault ratio, the rights of consumers could actually be infringed.
Currently, Assemblywoman Kim Hyunjung of the Democratic Party of Korea, a member of the National Assembly's Political Affairs Committee, is reportedly preparing to propose an amendment to the Financial Consumer Protection Act that includes the principle of unilateral binding force. A staff member from her office explained, "There is already a special provision for small-amount disputes in the current law, and we are working to include the unilateral binding force principle in that provision. Since the enforcement decree currently delegates the amount for small-amount disputes-set at under 20 million won-it seems possible to delegate the regulations for unilateral binding force to the enforcement decree as well."
The Financial Supervisory Service's recent launch of a task force to overhaul insurance product brochures is another issue causing concern for the insurance industry. The task force aims to make brochures simpler, more visual, and digital so that consumers can more easily understand insurance products. The revised guidelines are expected to be announced within the year. In response, insurance companies have been busy providing customer service training and publishing customer guidebooks.
On September 1, Lee Chanjin met with the heads of 16 major life and non-life insurance companies and urged them to "present coverage details in a rational and clear manner and provide sufficient explanations to consumers, thereby enhancing the objectivity and reliability of insurance claim payments."
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