Concerns are being raised over the "third-party risk management guidelines," which require insurers to assess risks such as the rate of misselling and the potential for unsound business practices by corporate insurance agencies (GAs) when entering into delegated sales contracts. This is because authorities are reviewing measures to impose disadvantages if insurers fail to manage GA risks, such as contracting with high-risk GAs. Critics say fair and accurate evaluations will be impossible due to insurers' conflicts of interest.
According to the insurance industry on the 16th, the life and non-life insurance associations plan to establish third-party risk management guidelines for insurers and implement them starting Dec. 1. Under the guidelines, insurers must measure risks related to GAs using quantitative and qualitative methods. Representative quantitative indicators include the misselling rate and the number of complaints, while qualitative indicators include the level of internal controls at the GA and the adequacy of its consumer protection framework. However, insurers may use their own checklists to measure risk.
Financial authorities are considering effectively imposing disadvantages, such as requiring insurers to set aside additional capital, if they fail to manage GA risks. The insurance industry sees this as imposing part of the responsibility for unsound GA business practices on insurers and further strengthening their duty to supervise GAs. The move is interpreted as aiming to prevent insurers from delegating product sales to GAs with a high likelihood of unsound practices for the sake of performance while avoiding responsibility for misselling. An insurance industry official said, "It seems to mean that insurers that outsource product sales should also do their job properly."
However, the industry argues that fair evaluations may be difficult due to insurers' conflicts of interest. It is now said that insurers' performance varies depending on GA sales, reflecting the growing clout of the GA sector. Insurers may find it hard to evaluate GAs that affect their performance strictly. According to the Financial Supervisory Service, the number of insurance planners affiliated with GAs increased from 233,000 in 2020 to 285,000 last year. In contrast, during the same period, the number of exclusive planners at insurers decreased from 199,000 to 187,000. As of the end of last year, the largest share of initial premium sales for non-life insurers came from the GA channel (31.1%).
Because of this, there are concerns that GAs that have diligently strengthened internal controls will face reverse discrimination. An insurance industry official said, "It will be relatively difficult for large GAs to receive lower evaluations, whereas small and mid-sized GAs are more likely to face unfavorable conditions," adding, "If evaluation responsibility is shifted to insurers, it will be impossible to ensure fairness, creating a risk that diligent GAs will not receive relatively fair evaluations."
A financial authority official said, "It is only natural that insurers should manage risks related to GAs, and the purpose of the guidelines is to make this more systematic," adding, "The supervisory authorities will likewise conduct inspections of problematic GAs when necessary, so this is something we will do together (with insurers)." The official continued, "If risks exceed what an insurer can accept, the insurer should make its own judgment, such as reducing exposure," adding, "This is not a structure that compiles evaluations of GAs and publishes rankings."