The Financial Services Commission (“FSC”) has recently proposed the following changes to the insurance sales commission system to prevent unsound sales practices, which may undermine reliability of insurance products:
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To reduce the incentive for agents to engage in fraudulent sales to customers, the sum of the first year sales commission and surrender value for protection-type insurance shall not exceed the insurance premiums paid for the 1st year. There will be no limit on the amount of sales commission that can be paid in the 2nd year and thereafter. Payments for the cost of complying with the voice-recording duty and the cost of transmitting broadcast incurred by the telemarketing and home shopping channels are exempted.
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To deter insurance companies from paying excessive commissions to influential general agents, insurance companies will be required to set standards for payment of all commissions at the time of designing the insurance product and to report any change of such standards to the competent supervisory authority.
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To encourage payment of sales commission in instalments, where the commissions paid during the 1st year do not exceed 60% of the standard surrender charge, the total amount of sales commission to be paid on an installment basis can be set higher than upfront commissions by 5%.
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As for saving nature premiums of protection-type insurance, the surrender charge will be lowered to 70% of the current level.
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The acquisition cost for a renewed product will be set at the level of 70% of the original acquisition cost.
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In order to set the acquisition cost beyond the surrender charge, the acquisition cost shall be disclosed.
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The standards of calculating the surrender charge of third area insurance, such as health insurance, which is sold by both life and non-life insurance companies, shall be unified.
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When selling protection-type insurance, such as whole life insurance, with an annuity rider, a comparison with the amount of annuity payment of saving-type annuity insurance should be provided.
The proposed changes require amendments to the FSC’s supervisory regulations, which the FSC intends to implement in April 2020, January 2021, and January 2022, depending on the specific matter.
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