Starting in the first quarter of next year, the sales commission paid to insurance agents will be distributed monthly over a period of 3 to 7 years to improve the retention rate of insurance contracts. Currently, the sales commission is paid in advance during the 1st and 2nd years, which has led to frequent job changes among insurance agents and improper replacement, contributing to a decline in the retention rate of insurance contracts. Additionally, the 1200% rule, which was previously applied only when insurers paid commissions to exclusive agents and brokers, will also be expanded to agents affiliated with brokers.
The Financial Services Commission and the Financial Supervisory Service announced the ‘Insurance Sales Commission Reform Direction’ on the 17th. This reform direction will finalize a plan after collecting opinions through briefings for brokers and agents during the first quarter of next year.
The reform proposal includes a plan to distribute the sales commission paid to agents over a maximum of 7 years. Previously, commissions were effectively only provided in advance (1-2 years), resulting in little incentive to maintain and manage contracts in the medium to long term. Therefore, if the contracts recruited are maintained normally, maintenance and management commissions will be distributed over a period of 3 to 7 years (tentative) to encourage the long-term maintenance and management of insurance contracts. To prevent excessive payment of maintenance and management commissions, the payment limit will be set separately at around 1% of the monthly contract signing costs.
The 1200% rule, which was only applicable when insurers paid commissions to exclusive agents and brokers, will also apply when brokers pay their agents. The settlement support fund (contract money), which has caused competitive recruiting of agents and improper replacements, will also be included within the 1200% rule limit. As this has not applied to agents affiliated with brokers, substantial settlement support funds have been paid, leading to an increase in agent job changes and replacement contracts.
Insurers will improve the system so that the upfront commissions for protection insurance are executed within the contract signing costs assigned to individual products, to prevent the excessive pricing of contract management costs for use as commission sources. Financial authorities noted that such excessive commissions act as a factor for premium increases. Moving forward, upfront commissions for protection insurance will be improved to be executed within the contract signing costs assigned to individual products.
To ensure that consumers can accurately know the sales commission for products, insurance companies will provide information about the commission rates of the products upon insurance enrollment, and they will also publicly disclose detailed commission rate information by sales channel and product group.
Kim So-young, Vice Chairman of the Financial Services Commission, pointed out that after the implementation of the new International Financial Reporting Standard (IFRS) 17, the amortization period of operating costs has increased, intensifying competition for new contracts and operating expenses within the insurance industry. According to the Financial Services Commission, the spending of insurance companies on operating costs last year was 39.8 trillion won, an increase of 4.9 trillion won compared to the previous year, and it is expected that this year's increase will surpass last year's.