Aiming to improve the competitiveness of the insurance industry in Korea and strengthen the protection of insurance consumers, the Cabinet passed a proposed amendment to the Insurance Business Act (the “IBA”) on June 23, 2020. Subsequently, on June 24, 2020, the Financial Services Commission approved a proposed amendment to the Insurance Business Supervisory Regulations (the “IBSR”).
Key Details of the Amended IBA
1. Improved autonomy in corporate management
- The prior reporting requirement for bancassurance products is abolished.
- Insurance companies are no longer obliged to make prior reporting in any of the following circumstances:
- When the insurance company is concurrently engaged in any other financial business which it has obtained a license, authorization or registration under other applicable laws; or
- When the insurance company operates any ancillary business that is the same type of business for which any other insurance company has already reported to the regulators.
- Simplified process for holding subsidiaries
- If an insurance company is authorized by applicable laws to set up a company, it is no longer required to obtain approval from the regulators to own such company as a subsidiary under the IBA.
- If an insurance company intends to hold a subsidiary, which engages in the asset management business, it is required to file a report on an ex post basis rather than a prior report.
2. Improved transparency and protection of consumers
- An insurance company must have the adequacy of its policy reserves verified by a rate calculation agency or an external actuary.
- When transferring insurance contracts to any other insurers, the transferring insurance company must notify individual policyholders of such transfers.
- An insurance company shall be subject to an administrative fine if it fails to verify whether a policyholder holds a duplicate insurance for a medical insurance it intends to solicit from the policyholder.
Major Amendments to the IBSR
- New insurance products which (i) provide a new type of coverage or (ii) restrict payment of insurance proceeds, are added to the list of products that must be reviewed by the “consultative council for the development of new third-type insurance products” (the “Consultative Council”) operated by an insurance association.
- The Consultative Council must review whether the restrictions on payment of insurance proceeds are reasonable from a medical perspective and are clearly stated for consumers to easily understand.
- When an insurance company intends to prepare or change basic documents (i.e., insurance policy, business manual, and calculation methods for insurance premiums and policy reserves), potential legal risks and medical risks associated with third-type insurance policies must be assessed beforehand.
- Legal risks: A legal expert or a compliance officer must assess potential risks in advance, such as whether basic documents are in violation of applicable laws, and whether there are factors that may infringe upon consumers’ rights or trigger disputes.
- Medical risks: A medical expert must assess third-type insurance products in advance, which (i) provide a new type of coverage or (ii) restrict payment of insurance proceeds.
The amended IBA will be submitted to the National Assembly by July 2020. Meanwhile, the amended IBSR is scheduled to take effect on September 1, 2020.
