On November 24, 2020, an amendment to the Enforcement Decree of the Insurance Business Act, which the Financial Services Commission (the “FSC”) had proposed to reflect amendments to the Insurance Business Act (the “IBA”), was adopted at a meeting of the Cabinet.
Key changes are summarized as follows:
1. Change in the entities that may be subject to administrative fines for failing to inform consumers of their “right to request a reduction in interest rate”
This change is to reflect amendments to the IBA whereby administrative fines may be imposed on an “insurer,” rather than the “incorporators, etc. of an insurer,” for a failure to inform consumers of their right to request a reduction in interest rate.
A provision was newly inserted in the IBA in December 2018 imposing an obligation to inform consumers of their right to request a reduction in interest rate. The IBA was further amended on May 19, 2020 so that an administrative fine of up to KRW 20 million may be imposed on an “insurer,” rather than the “incorporators, etc. of an insurer” as stipulated in the previous version of the law. This change was made not only to address the issue of inequality arising from the fact that administrative fines can be imposed on financial companies in other financial sectors, but also to alleviate the burden on officers and employees of insurance companies that they may face in the course of conducting their work. The amended clause took effect on November 20, 2020.
2. Phased implementation of the “25% Rule” to regulate the proportion of insurance sales generated by credit card companies
A phased approach will be adopted to increase credit card companies’ compliance with the “25% Rule,” which regulates the proportion of insurance products which they can solicit while serving as insurance agencies for financial institutions (i.e., from 66% in 2021 to 50% in 2022, 33% in 2023, and 25% in 2024). The 25% Rule provides that the annual insurance sales generated by a financial institution’s agency from selling insurance products of a particular insurer must not exceed 25%.
The amendments to the Enforcement Decree will become effective on the date of promulgation after obtaining approval from the President.