The Financial Services Commission (“FSC”) and the Financial Supervisory Service (“FSS”) plan to implement measures to promote healthy competition in the insurance industry and strengthen the internal controls of insurance companies. These measures aim to prevent consumer harm caused by heightened sales competition pursuing short-term gains and financial incidents, such as embezzlement. Key details of the measures are as follows:
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1. |
Measures to Promote Healthy Competition in the Insurance Industry |
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A. |
Strengthening the risk management process for insurers |
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At insurance companies, the roles of the product committee will be strengthened.
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Insurers will be required to include the Chief Risk Officer, Chief Compliance Officer and Chief Customer Officer, alongside the Chief Product Officer, among the members of their product committees. |
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Product committees will be required to perform the role of a control tower which oversees all matters related to products, including product planning, launch and post-sale management. |
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Product committees will be required to (i) report the details of their deliberations and decisions to the representative director and (ii) retain meeting materials, including minutes, for at least ten years. |
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In order to enhance the effectiveness of third-party verification of insurance premiums and risk rates during the development of insurance products, insurers will be required to (i) develop a manual that outlines verification procedures and includes a standard template, (ii) adopt standardized verification procedures, and (iii) establish key indicators to assess the quality of actuarial firms (e.g., their work performance, total headcount, and personnel and hours allocated to the verification) and disclose verification results on the Institute of Actuaries of Korea’s website.
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B. |
Review of reasonable coverage limits |
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The regulatory authorities will establish guidelines to ensure that insurers set appropriate limits for each type of coverage when developing insurance products. They will also improve the criteria for filing and reviewing insurance products.
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Insurers will be required to set reasonable coverage limits by considering the average costs that would actually be incurred. |
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For products that require filing, insurers will be required to specify the calculation basis of coverage limits in the product filing documents. For no filing products, insurers will be required to include coverage limits in the basic documents of the products that may result in moral hazards (e.g., attorney’s fees in driver’s insurance, daily allowances for hospitalization, outpatient care and nursing care, and influenza insurance). |
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C. |
Creation of an environment that promotes healthy competition |
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Regulations will be strengthened to prevent arbitrage that stems from the payment of excessive commissions to insurance planners.
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Arbitrage prohibition period: The prohibition period will be extended from one year to the entire term of insurance products. |
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Criteria for determining arbitrage: The determination of whether an insurance planner engaged in arbitrage will be made based on all types of payments made to the insurance planner, in addition to sales commissions. |
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The period of insurers’ exclusive rights to use their insurance products will be extended from three to six months to 12 to 18 months, thereby enhancing its effectiveness.
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2. |
Measures to Strengthen Internal Controls at Insurance Companies |
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A. |
Measures to prevent financial incidents |
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Employees engaged in high-risk activities will be prohibited from engaging in these activities continuously over a long period (i.e., five years) and will be placed on mandatory leave at least once a year.
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Insurers will be required to employ multiple personnel and departments for the tasks dealing with transactions that may involve a high risk of financial incidents.
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The compliance personnel at insurers should be at least 1% of all officers and employees, and at least 50% of the compliance personnel should be experts (e.g., certificate holders, holders of master’s degrees or higher, or individuals with relevant experience).
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Insurers will be required to establish (i) a real-time monitoring system to identify abnormal transactions that pose a high risk of financial incidents. and (ii) procedures to verify whether documents submitted by consumers have been forged or altered.
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B. |
Strengthening internal controls to prevent insurance fraud |
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Insurers will be required to conduct an insurance fraud risk assessment based on the details and limits of each type of coverage and have the assessment results reviewed by their product committees.
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Insurers will be required to determine policyholders’ coverage limits by taking into account the coverage limits of other policies they have.
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The underwriting and review process will be strengthened for redundant and/or excessive insurance purchases.
Among the above measures, the measures that insurers can independently implement should be put into effect by the end of 2024, and the measures that require legislative amendments will enter into force following necessary amendments in the first half of 2025.
Related Topics
#Internal Controls #Insurance Industry #Insurance #Legal Update
