Samsung Life Insurance is running a "self-contract incentive (施策)" marketing campaign for some health insurance products. If an insurance planner signs up for the product under the planner's own name (self-contract), the company pays not only a commission but also an extra allowance (incentive) to encourage enrollment.
According to the insurance industry on the 18th, promotional text messages titled "Samsung Life Insurance industry's lowest-price self-contract incentive recognized for 'Suntongchi'" have recently been sent to planners. The messages summarize the key features of the marketing product. The idea is to sign up for the product to prepare for illness and also receive the incentive. "Suntongchi" is a shorthand for "circulatory system integrated treatment benefit," which provides coverage for tests and treatment costs when diagnosed with cardiovascular or cerebrovascular diseases.
Self-contracting itself is not illegal, but planners abuse it as a tool to make up for weak performance. Many cancel the contract after meeting target performance. While insurers may see a short-term boost, it hurts performance in the long run as contract retention rates fall.
In particular, when companies like Samsung Life Insurance add an incentive on top of commissions for self-contracts, the likelihood of arbitrage increases. That is why most insurers do not pay incentives on self-contracts. Arbitrage occurs when a planner signs up for a product, receives commissions and incentives for a certain period, then cancels the contract. The planner can profit because the commissions and incentives exceed the premiums paid.
The promotional message appears to have been sent by Samsung Life Insurance general agencies (GA). But the industry believes it would be difficult for a GA to unilaterally implement the policy without Samsung Life Insurance's approval or authorization. At the end of last year, Samsung Life Insurance also temporarily applied self-contract incentives to limited-pay whole life insurance.
An insurance industry official said, "A GA cannot run a self-contract incentive without approval from the relevant head office department." A branch head at a large GA also said, "There are times when an insurer, to boost sales of a flagship product, recognizes self-contract incentives. It is not a structure that a GA can do on its own."
In Jan., Samsung Life Insurance was given a management caution by the Financial Supervisory Service (FSS) after 11,929 cases of arbitrage were uncovered. Of those, 1,214 were self-contracts. The FSS noted that Samsung Life Insurance lacked monitoring and sanctions regarding the status of arbitrage.
Samsung Life Insurance says the self-contract incentive is not a head office policy. A Samsung Life Insurance official said, "It appears that planners active in a specific region provided guidance to promote new coverage. It is also hard to see it as aimed at boosting sales (because the premiums are low)."