In accordance with the amendment to the Insurance Business Act in December last year, the Financial Services Commission (the “FSC”) plans to introduce short-term microinsurance business (“microinsurance business”) from June 2021. Accordingly, the FSC announced proposed amendments to the Enforcement Decree of the Insurance Business Act and Insurance Business Supervisory Regulations (the “Proposed Amendments”), which require insurers to appoint an independent external agency to verify the adequacy of liability reserves. The Proposed Amendments will also allow insurers to own subsidiaries engaged in the MyData business and healthcare business.
1. Introduction of Short-Term Micro-Insurance
Currently, the minimum capital requirement for a comprehensive insurance provider is KRW 30 billion. However, the Insurance Business Act will be amended to relax the requirements for micro-insurance providers by subjecting them to a lower threshold of KRW 2 billion. By lowering the entry barrier, the new legislation is expected to attract new players to the micro-insurance business, and via this increased competition, eventually lead to creation of various novel types of micro-insurance products that will meet consumers’ needs.
While introducing the Proposed Amendments, the FSC has also set certain limitations for the micro-insurance business in consideration of the need to protect policyholders and ensure the coverage providers’ financial soundness. According to the new legislation, micro-insurance products are limited to non-life/property insurance coverage (i.e., liability, costs & expenses, weather, theft, animal and glass), other liabilities (e.g., disease and injury), and life insurance, and excludes: any retirement or nursing care insurance requiring long-term coverage; and nuclear, automobile and fire insurance products that typically require larger capital reserves. Further, the coverage term for these micro-insurance policies shall be limited to one year, with a cap on the insurance award of KRW 50 million, and a cap on the annual gross premiums collected of KRW 50 billion.
2. Duty to Appoint External Agency to Verify Liability Reserves in Line with IFRS 17
The Proposed Amendments require insurance companies to have an independent external agency verify the adequacy of the insurers’ liability reserves in response to changes in the accounting system, including the introduction of IFRS 17. Specifically, insurance companies with total assets of KRW 1 trillion or more (or even if the total assets are less than KRW 1 trillion, insurance companies providing coverage in which maintaining high liability reserve is crucial) must appoint an external independent party to verify the adequacy of liability reserves on an annual basis, as well as the adequacy of the assumptions used for calculating or evaluating liability reserves. In addition, insurance companies must submit a verification report on the adequacy of liability reserves to the Governor of Financial Supervisory Service within three months after the end of each fiscal year. To ensure objectivity, insurance companies are not allowed to receive verification from the same agency for four consecutive fiscal years.
3. More Leniency in Ownership of Subsidiaries
In order to promote investment and collaboration in new industries such as MyData and healthcare, the FSC will allow insurance companies to own subsidiaries engaged in (i) personal credit information management service and (ii) healthcare business. Moreover, the FSC plans to relax the regulatory reporting requirements for insurance companies owning subsidiaries that are engaged in a business that is closely connected to asset management by modifying the requirement from prior approval/report to post facto report.
The notice and comment period for the Proposed Amendments ended in April 2021. In light of the foregoing developments, we advise you to regularly monitor the progress and implementation of the Proposed Amendments.
