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Newsletter | December 2014, Issue 4
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INSURANCE
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Proposed Amendments to the Insurance Business Act and Enforcement Decree
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On September 25, 2014, the Financial Services Commission (“FSC”) announced certain proposed amendments will be made to the Insurance Business Act (“IBA”) and its Enforcement Decree. Below is a summary of the proposed amendment.
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Insurer’s Obligation to Fairly and Promptly Process Insurance Claims
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Insurers will be obligated to process insurance claims submitted by policyholders in a fair and prompt manner.
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Insurers will also be prohibited from providing false information to its policyholders regarding claims filing and handling procedures including the payment of insurance claim amounts and sending delayed notices to policyholders regarding decision to pay or deny claims for insurance proceeds. An insurer will be subject to an administrative fine of up to KRW 10 million for violations of the foregoing claims handling requirements.
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Facilitation of the Insurance Product Development
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In the case of an insurance product which must be reported to the Financial Supervisory Service (“FSS”) prior to the commencement of sales (“Report and Use Product”), a reporting period will be clarified in the IBA by changing “30 days before the expected implementation date” to “30 days before the implementation date” so that an insurer will be able to more accurately anticipate the sale commencement date taking into account a period for marketing efforts.
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In the case of an insurance product which does not need to be reported to the FSS (“Non-Report and Use Product”), a period during which an insurer must submit supporting materials to the FSS for its ex post verification of a Non-Report and Use Product will be extended from the current 15 days to 30 days, from the date of receipt of the FSS request.
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Simplified Procedures on Reporting of Concurrent and Ancillary Business
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The concurrent business of an insurer which has been reported to the regulatory authorities pursuant to other laws and regulations will not be required to be reported in advance under the IBA.
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If an insurer intends to engage in an ancillary business which was previously reported by another insurer to the regulatory authorities and publicly disclosed, then such insurer may engage in the relevant ancillary business without its prior reporting to the Korean regulatory authorities.
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Outside Assessment of Reserves
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Insurers will be obligated to secure an opinion and verification of outside actuaries as to the appropriateness of reserve calculations and preparations.
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This amendment to the IBA was introduced due to a call for verification of the appropriateness of the actuarial assumptions, calculations and preparations for claim reserves as a result of the recent changes in the related claims handling policies.
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Increase in Sanctions for Repeated and Aggravated Unlawful Acts
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In the event that an insurer has repeatedly committed unlawful acts such as the mis-selling of insurance products or a violation of the duty to comply with the form and contents of the basic documents, the regulatory authorities may suspend all or part of such insurer’s line of business up to a period of six months as a more severe sanction against the insurer.
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Further, if an insurer’s agent is also determined to have committed repeated unlawful acts such as mis-selling of insurance products or execution of unfair renewal insurance contracts, the regulatory authorities may suspend all or part of such agent’s line of business up to six months as a more severe sanction against the agent.
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Increase in Penalty Surcharges and Administrative Fines
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The maximum amount for a penalty surcharge on an insurer will be increased by 10%p and the specific procedures for imposing the penalty surcharge will also be directly incorporated in the IBA.
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The maximum amount for an administrative fine on an insurer as a company will be increased two-fold from the previous KRW 50 million to KRW 100 million and, for officers and employees of an insurer as individuals the administrative fines will be increased by more than double the previous amount of KRW 20 million to KRW 50 million.
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Eased Regulation on Insurance Advertisements
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An image advertisement of insurance products, which seeks to attract interest of potential customers by exposing overall image but not the details of such products, will be permitted.
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However, an insurer will still be required to inform the customers of major characteristics of an insurance product which may be unfavorable to the customers. Further, an insurer will be prohibited from launching advertisements which solicit insurance subscription by creating unnecessary discomfort for the viewers and exaggerate uncertain benefits in the future.
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Strengthened Regulations on Transactions between an Insurer and its Large Shareholders
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An insurer will be prohibited from engaging in “asset or service transactions” with its large shareholders (including a specially-related party) under “unfavorable” terms and conditions. Since the current regulation prohibits a deal which is only determined to be a “clearly unfavorable asset transaction,” the proposed amendment seeks to strengthen the scope and level of such regulation on transactions entered into between an insurer and its large shareholders.
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An insurer must first secure the prior consent of its board of directors by a unanimous vote if it intends to engage in an asset or service transaction exceeding a certain size (10% of equity capital or KRW 1 billion) with its large shareholders. Also, the transaction must be reported to the FSC within seven days from the closing of the transaction with a public announcement.
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An insurer that violates its duty to disclose the transaction with its large shareholders through a public announcement may be subject to an administrative fine of up to KRW 100 million.
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The standards for imposing a criminal penalty or surcharge due to unfair transactions between an insurer and its large shareholders will be strengthened to be in line with those sanctions imposed on other financial services companies. Further, the large shareholders that gained profits from such unfair transaction may also be subject to a penalty surcharge of 40% of the purchase price for the transaction.
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Miscellaneous
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Although the current insurance regulations provide that the regulatory authorities may impose sanctions on an insurer as set out in the IBA and its Enforcement Decree “if a certain act is deemed to harm [or harmed] the sound management of the insurer,” the proposed amendments will also confer the power to the regulatory authorities to impose sanctions on the insurer “if a certain act infringes consumer interests.”
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Insurers will be required to disclose cases of non-payment and/or reduction of insurance claims in the informational materials which the insurer provides to its policyholders upon the execution of an insurance contract.
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Loans made for the purpose of investment in trading securities will be excluded from the list of assets where the management by an insurer is restricted.
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The proposed amendments will provide a legal basis for the establishment of a system which collects and shares solicitation history of insurance solicitors, and insurers will be required to confirm and consider such solicitation history when appointing and registering their insurance solicitors.
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The submission of the IBA amendments to the National Assembly and follow-up actions required for the amendment of the Enforcement Decree are expected to be completed in 2014. At about the same time, the Regulation on the Supervision of Insurance Business will also be amended accordingly.
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Back to Main Page
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