The Financial Supervisory Service has issued “Guidelines on Settlement Agreements” (the “Guidelines”) to address certain unfair practices in settlements of insurance proceeds related disputes between insurance companies and consumers. The key features of the Guidelines are summarized below.
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1.
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Stricter Internal Controls in Utilizing Settlement Agreements
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Thus, under the Guidelines, settlement agreements may only be utilized where the requirements for payment of insurance proceeds under the relevant policy have not been adequately confirmed due to insufficient substantiating evidence, etc.
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2.
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Disclosure and Other Requirements for Settlement Agreements
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Use an appropriate title for agreements, which clearly reflects the fact that the agreement constitutes a “settlement;”
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Disclose the details of the dispute, the proposed settlement, and applicable deadlines for performing any obligations under the agreed settlement; and
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Have the consumers affix their names in their own handwriting, and sign the settlement agreement, as confirmation that they received sufficient explanations about the settlement.
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Settlement agreements should reference the underlying insurance policy and the parties to the proposed settlement, state the respective positions of the insurance company and the policyholder, and provide the details of the proposed settlement.
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Settlement agreements must not contain the following types of references which unreasonably infringe on the consumers’ rights:
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①
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Wording which requires the policyholder to acknowledge the existence of a “non-payment condition” under the standardized contract, as a pre-condition for payment of insurance proceeds under the settlement;
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②
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Wording that requires consumers to waive any and all rights, including the right to litigate; and
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③
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Wording that prohibits the filing of similar insurance claims by the policyholder in the future.
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Settlement agreements must also expressly state the deadline for the insurance company to perform obligations under the settlement (to be set within ten days from the effective date of the settlement agreement).
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3.
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Internal Controls for Ex-Post Facto Compliance Management
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Insurance companies are required to conduct an adequacy review on requirements of the Guidelines, including the appropriateness of the policy/policyholder for settlement, satisfaction of disclosure obligations, the absence of unfair/prohibited terms in the settlement agreement, etc.
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Compliance officers, or internal audit teams, are required to conduct an inspection or audit, at least once a year, to ensure the insurer’s compliance with its internal policies regarding the execution of settlement agreements.
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Insurance companies should reflect the Guidelines in their internal rules and procedures in due course and certain requirements which can be implemented immediately, such as the requirements regarding the terms and content of settlement agreements, should be implemented immediately (beginning in April 2024).
[Korean Version]
