On January 21, 2025, the Financial Services Commission (the “FSC”) and the Financial Supervisory Service (the “FSS”) jointly held the “Sixth Insurance Reform Conference for Restoration of Trust and Innovation.” The event was attended by various organizations, including academic associations (e.g., the Korean Academy of Financial Consumers), research institutes, insurance companies and insurance associations.

During the conference, participants discussed (i) reforms to regulations on insurance agencies, (ii) improvements relating to insurance policy loans, (iii) enhancing accountability for insurance sales channels, and (iv) promoting a stable, long-term focused management of insurers, through measures including revamping performance-based incentive practices.

The key issues discussed during the Sixth Insurance Reform Conference were as follows:
 

• For the first time in 19 years, the financial regulators have decided to ease existing bancassurance regulations and revise the current sales ratio restrictions that limit the distribution of a single insurer’s products to 25% or lower. Under these restrictions, a bank may not sell more than 25% of its total annual sales for any single insurer’s products. The financial authorities plan to examine the impact of the proposed regulatory changes by initially implementing the changes through the innovative financial services program, before formally amending the applicable laws and regulations. The transition will take place as follows:

• To address concerns raised by some insurance companies, the following conditions will apply:

• Additionally, the obligation to provide comparisons and explanations on other identical or similar products will be strengthened in order to broaden the scope of consumer choice and allow small and medium-sized insurers to compete fairly.

• Discounted rates will be applied to certain types of policies to address on-going criticisms regarding consumer burden arising from the high interest rates imposed on insurance policy loans (to apply to new and existing loans).

• New measures will be implemented to strengthen the accountability of general agencies (“GAs”) to address on-going concerns about misconduct, including fraudulent selling and abuse of superior bargaining position.
   

• Reinforce obligations for insurers to manage partner GAs: The FSS will implement a “GA Operational Risk Assessment System” to evaluate the insurers’ management of their partner GAs. Each insurer will be rated from grade 1 to 5, and the FSS will guide each insurer to strengthen the management of its respective GA partners based on the results of the operational risk assessment.
   

• Establish selection and evaluation standards for partner GAs: Insurers will be required to periodically evaluate the operational soundness and internal controls of their GAs in order to better manage the outsourcing of the sale of insurance products. Insurers are to implement measures to improve the management of their partner GAs based on the evaluation.
   

• Strengthen GAs’ internal controls and ensure sales accountability: Large GAs are required to establish (i) detailed procedures to ensure compliance with internal control standards and take remedial action for non-compliance, (ii) statutory minimum staffing requirements for compliance functions, according to each GA’s size, and (iii) strengthened qualification requirements for GA officers.
   

• To increase GAs’ responsibility for damages, minimum guarantee reserve requirements will be adjusted to more practical levels and GAs will be subject to increased accountability for sales, including indemnification obligations.
   

• Enforcement actions: Administrative penalties will apply in lieu of the current business suspension type enforcement. GAs will be expressly prohibited from transferring their businesses to circumvent enforcement actions, and GA officers/employees will be prohibited from registering with other GAs. The scope of the basis for revoking the GA registration will also be expanded.
   

• Bolster accountability of insurance brokers: Insurance brokers will be subject to regulatory oversight, similar to insurance agencies.

• Rationalization of performance-based management incentives: A set of “Best Practices for Insurers’ Management Incentives” will be released to ensure the application of an incentives system that meets international standards. Some of the key topics that will be included are management compensation, performance evaluation and mandatory disclosure items.
   

• Governance Improvements: A set of “Best Practices for Insurers’ Governance” will be released, reflecting international standards and precedents from the banking sector. Key content will include: (i) management succession planning, (ii) composition and evaluation of the board of directors, and (iii) evaluation and disclosure of governance structures.
   

• Model internal control standards: The financial authorities will refer to practices and precedents from other sectors to issue “Model Internal Control Standards for Insurance Sector” that fully reflect the particularities of the insurance business. These standards will stipulate all matters that must be included in the internal control policies under the Act on Corporate Governance of Financial Companies and require insurers to establish specific management standards for each internal control category.
   

As significant changes to insurance industry regulations will likely take place through the insurance reform conference, companies should carefully consider new regulations, be prepared to promptly adapt to the changing regulatory landscape and ensure continued compliance with updated laws, regulations and guidelines.

[Korean Version]