On May 2, 2018, the Financial Service Commission (“FSC”) announced the “Reformed Regulations on Entry into Financial Businesses” (the “Reformed Regulations”).  The Reformed Regulations were the product of several task force meetings held over the past seven months by the FSC with representatives from various business sectors, including the insurance sector.  Focused on making it easier to establish specialty insurance companies, the task force conducted an assessment of the competitive landscape of the overall insurance sector.

Key Reform Measures:

First, the Insurance Business Act will be amended to relax the requirements for establishing low risk short-term micro-insurance companies.  Currently, the minimum capital requirement for comprehensive insurance companies is KRW 30 billion; however, this threshold will be significantly lowered in cases where insurance tenors and annual premiums fall below specified levels.

Second, the Enforcement Decree of the Insurance Business Act will be amended to better align relevant regulations and to facilitate business operations of online insurance companies.  To do so, the FSC will ease regulations that are not suitable for online operations.  For example, to simplify the procedures for online purchases of insurance, the provision of terms and conditions of policy through Internet links will be allowed.  

Further, the sale of simple micro-insurance (i.e., insurance relating to the daily life of an individual or a household) on online shopping malls will be allowed, invigorating online sales channels.  The FSC is also considering relaxing the KRW 20 billion capital requirement for online insurance companies. 

Third, the FSC plans to take administrative measures to facilitate the establishment of specialty insurance companies, particularly in industries, such as reinsurance and pensions, where there is market demand and profitability can be ensured.

Financial Industry Competition Evaluation Committee:

In addition, the FSC revealed its plan to set up a “Financial Industry Competition Evaluation Committee” comprised of nine non-government experts to reflect diversity of opinion in its policies regarding entry into the financial industry.  The FSC has also declared that it would strengthen the transparency of the FSC′s license authorization procedures.  The Committee held its first meeting on July 2, 2018, and proclaimed that the financial regulator will commence implementing the Reformed Regulations within the third quarter of 2018.  

Significance:

In light of the above, we highly recommend that insurers closely monitor the development and implementation of the Reformed Regulations along with the implications of the changing landscape of market competitiveness.