On August 26, the Financial Services Commission (“FSC”) announced a proposed amendment to the Insurance Business Supervisory Regulations (“IBSR”) to, among other things, improve the insurance sales commission system.  Major changes included in the proposed amendment are as follows: 

Improvement of the Insurance Sales Commission System 

To reduce arbitrage motivations through receiving sales commission, the sum of first year sales commissions for protection-type insurance shall not exceed insurance premiums paid for the first year.  Further, if protection-type insurance is surrendered during the first year, the sum of the sales commissions paid to the time of surrender shall not exceed the insurance premiums paid up to that point.  However, this restriction will not be applicable to any amount that is (i) used to comply with the recording requirements when selling insurance via telemarketing; (ii) paid to a broadcasting business operator by a home shopping channel; or (iii) paid to a new agent by an insurance company to support the agent’s solicitation activities for a year from the date on which the agent was registered.   

Further, the total amount of sales commissions to be paid in installments can be set higher than the total amount of upfront sales commissions by 5% or more. 

Reduction of Acquisition Costs for Renewable Insurance 

Acquisition costs for insurance policies that are renewed at the end of their term automatically or at the request of the policyholder shall not exceed 70% of the original acquisition costs. 

Strengthened Disclosure Standards for Costs of Protection-Type Insurance 

With respect to the protection-type insurance that imposes acquisition costs beyond standard surrender charges, the acquisition cost index (the ratio of the acquisition cost to the gross premium) and the cost index (the ratio of the amount of costs to the gross premium) shall be included in the corresponding product disclosure statement and product summary. 

Unification of the Standards for Calculating Premiums and Policy Reserves for Third-Type Insurance 

The standards for calculating premiums and policy reserves for third-type insurance sold by non-life insurance companies shall be unified with the standards used by life insurance companies. 

Any opinion on the proposed amendment to the IBSR can be submitted to the FSC by October 4, 2019.