The financial authorities found that the aggressive marketing of management term insurance has persisted even after they began supervisory administration last year. The financial authorities decided to conduct priority inspections targeting insurance companies suspected of such aggressive marketing. Management term insurance is a type of coverage insurance that corporations take out for the benefit of their executives, such as the chief executive officer (CEO) and other executives, in preparation for contingencies.
The Financial Supervisory Service announced on the 24th that, based on inspections related to management term insurance of insurance companies and corporate insurance agencies (GAs), issues were revealed in all processes of designing, selling, underwriting, and post-management of management term insurance, including unhealthy business practices by sales organizations for unprofitable high-commission and high-return rate designs for short-term sales results, and the use of tax evasion methods.
The FSS determined that insurance companies provided incentives for arbitrage by raising the commission rates and return rates for management term insurance. Arbitrage refers to situations where the commission, refund, policies, and other refunds exceed the paid premiums, allowing individuals to profit by canceling their contracts after receiving long-term maintenance bonuses.
At the sales stage, some insurance brokers claimed to individual business owners that management term insurance could be utilized for corporate transitions and inheritance, resulting in incomplete sales practices. In addition, investigations revealed that brokers affiliated with GAs provided direct monetary or special benefits to the policyholder or insured, or used virtual accounts to make premium payments without verifying actual deposits.
Moreover, cases of suspicious written contracts were detected, where brokers recruited clients under the name of other brokers from different GAs and received commissions from those brokers, or brokered mutual premium payments among themselves only to cancel contracts after a certain period and pocket the profits.
In particular, when changing the policyholder, failure to verify the new policyholder led to the influx of contracts unrelated to the corporation, and there were cases where the insured was not part of the corporate management. In such cases, high refunds that should belong to corporate policyholders could be attributed to others, potentially being used as a means of indirect inheritance or gift.
According to the FSS, from December 23 to December 31 of last year, the average daily number of management term insurance contracts signed by 11 insurance companies was 327, up 7.9% from the previous month (303 contracts). The average daily first premium was 11.539 billion won, soaring 87.3% compared to the previous month (6.162 billion won).
The FSS stated it would rectify the market order with the maximum level of sanctions permitted by law for illegal and unfair practices. It warned that it would block transactions through account tracing for arbitrage contracts or special benefit offerings. Additionally, regarding suspected tax evasion related to inheritance and gift taxes, it decided to closely cooperate with investigative agencies by providing information to the National Tax Service and other relevant institutions.