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Newsletter | February 2014, Issue 1
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INSURANCE |
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FSC Announces Plan to Improve Competitiveness of the Financial Services Industry |
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On November 27, 2013, the Financial Services Commission (“FSC”) announced its Plan to Improve the Competitiveness of the Financial Industry ( “Plan”) to strengthen the quality and value of the Korean financial services sector. The following is a summary of the measures set forth in the Plan relating to the insurance business:
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Promotion of fair competition: The Plan (i) allows insurance companies to solicit foreign patients, (ii) promotes a “level playing field” with quasi-insurance such as mutual aid, (iii) promotes the use of “big data” and (iv) provides a platform for innovative sales distribution channels for financial services products (e.g., unmanned automated store); |
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Increase in demand for financial services: The Plan envisions to (i) establish comprehensive pension portals, (ii) establish an organization to supervise consulting activities for retirement planning, (iii) support efforts to improve longevity risk management and (iv) reform regulation on long-term asset management; |
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Promotion of the private pension market: The Plan envisions to (i) provide commission discounts for long-term maintenance of individual pension and mandatory annuitization for certain portion of benefits, (ii) protect retirement pension for up to KRW 50 million and (iii) promote reverse mortgage by expanding eligible applicants and products; |
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Promotion of life-cycle asset management: The Plan introduces (i) “one stop” shopping distribution channel and (ii) independent and professional financial services product consultants; |
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Protection of financial services consumers: The Plan offers to protect financial services consumers through legislation of the Financial Consumer Protection Act and establishment of the Financial Consumer Protection Agency; |
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Greater expertise and transparency in financial supervision: The Plan offers financial regulators to concentrate supervisory activities in high-risk areas and to revisit unofficial guidance and guidelines; and |
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Improvement of corporate governance: The Plan provides to legislate the Act on Corporate Governance of Financial Institutions and to introduce “Best Practices for Corporate Governance.” |
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Further, the FSC has prepared a detailed plan for the insurance business that will “develop a sound insurance industry which the consumers can trust.” In order to achieve this vision, the FSC has suggested the following four (4) objectives:
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Enhanced role for a social safety net: This includes deregulation on insurance products to accommodate the demand for insurance by senior citizens, introducing a “Lifetime Total Health Insurance” (proposed name) and allowing payment of medical fees from annuity savings; |
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Ensured continued growth momentum of the insurance industry: This relates to deregulation on financial reinsurance and derivatives investment and introduction of short-term and small-amount insurance; |
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Reform of distribution channels: This relates to establishing an “online insurance supermarket,” introducing a single insurance agency and upgrading and re-classifying insurance solicitors as general financial consultants; and |
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Enhancement of insurance consumer trust: This relates to (i) displaying minimum standards and product comparison for high-demand products, (ii) promoting pension products with post-acquisition sales commissions, (iii) introducing independent claim adjusters, (iv) strengthening the system for preventing and investigating insurance fraud and (v) introducing measures to protect defrauded insurance consumers. |
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We expect that the foregoing policy measures will bring new business opportunities for insurers, but will also require greater responsibility for consumer protection. Therefore, insurers need to closely monitor the changing regulatory environment for financial services supervision and strategically plan for new business opportunities.
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