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Newsletter | April 2015, Issue 1
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INSURANCE
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Amendments to the Insurance Business Law and its Enforcement Decree
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As a follow-up to the announcement on the implementation of the “Measures to Reform and Improve Insurance Business” made by the Financial Services Commission (“FSC”) on July 15, 2014, the Korean government has prepared legislative bills to amend the Insurance Business Law (“IBL”) and its Enforcement Decree. The bill to amend the IBL was introduced by the government on January 9, 2015 and is currently pending review and discussion by the National Policy Committee of the National Assembly. Also, a bill to amend the Enforcement Decree of the IBL was earlier and separately introduced on January 6, 2015 and will be effective on July 7, 2015 (with certain provisions taking effect in advance of this date). Summaries of the amendments to the IBL and its Enforcement Decree are set out below.
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Amendments to the IBL
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Reporting Exemption for Minor Changes to Bancassurance Products
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Insurers that make and adopt minor changes to the basic documents of its insurance products that are marketed and distributed through financial institutions registered as an insurance agent or broker (bancassurance products) shall be exempt from reporting such change to the FSC under the IBL.
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Consolidation of overlapping regulations on transactions between an insurer and its subsidiaries
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Previously, Article 111(1) (Prohibition, etc. on Transactions with Large Shareholders) and Article 116 (Prohibited Conduct with Subsidiaries) both applied to transactions between an insurer and its subsidiaries. The overlapping regulations in Article 111(1) and Article 116 have been resolved by the amendment of Article 111(1) to exclude transactions between an insurer and its subsidiaries from those subject to Article 111(1) of the IBL.
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Amendments to the Enforcement Decree of the IBL
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Disclosures on Conditions and Adjustments related to the Payment of Insurance Proceeds
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Written explanations related to conditions and adjustments towards the payment of insurance proceeds (e.g., non-payment or reduction in the amount of insurance proceeds to be paid to claimants) are included as one of the required disclosures in insurance information materials provided to consumers such as product descriptions, subscription plans, etc.
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This change seeks to assist insurance policyholders to better understand the terms and conditions related to the payment of insurance proceeds under insurance products during the policy subscription phase.
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Permitted image advertisements for insurance products
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Insurers are now permitted to launch image advertisements for their insurance products so long as the advertisements do not specifically describe the detailed terms and conditions of an insurance product (e.g., insurance premiums, proceeds, etc.).
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The Enforcement Decree (as amended) of the IBL regarding image advertisements became effective as of January 20, 2015 and, the specific requirements for such image advertisements (e.g., brief overview in a one minute segment without repetition of the major characteristics of the product of more than two times in the same segment) are separately provided by the amended Insurance Business Supervision Regulation (the “Supervision Regulation”) which also entered into force on the same date.
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Relaxation of the Standards and Burden for Product Development
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As for insurance products which should be reported to the FSS prior to its sale, the amended Enforcement Decree includes clarifications regarding the reporting requirements such as:
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thirty (30) days “prior to use” is now thirty (30) days “prior to the commencement of sale of an insurance product”; and
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the prior reporting requirement for amended reporting has been reduced to fifteen (15) days from the date that the FSC recommends revisions to the basic documents for an insurance product.
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As for insurance products for which there is no FSS reporting requirement for sales, the submission requirement for written verifications related to basic documents have now been extended:
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from twenty (20) days from the submission request, to thirty (30) days from the submission request.
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This amendment becomes effective on April 1, 2015 and all reports and submissions of the basic documents or written verifications made before the effective date will be grand-fathered and remain subject to the pre-amendment rules.
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Establishment and Operation of an Insurance Solicitation Records System
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The amended Enforcement Decree now provides the legal basis permitting insurers and insurance agents to share solicitation records of insurance solicitors through the insurance association’s information system.
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The amendment increases the scope of permitted business activities of the insurance association to now include the collection, management and sharing of solicitation records of insurance solicitors and individual agents. This measure seeks to address misselling and other unlawful business practices in the market, by disclosing the solicitation records of solicitors who frequently change their employment.
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The Supervision Regulation that specifies the details of the solicitation records to be registered and managed through the information system was promulgated on January 20, 2015 and will become effective on July 7, 2015.
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