Recently, some long-term care facilities were found to have taken out whole life insurance as operating funds, prompting the financial authorities to conduct a high-intensity investigation into the corporate insurance agencies (GA; General Agency) that brokered the policies. Some also said insurers abetted illegal acts.
According to the insurance industry on the 6th, the financial authorities and the Ministry of Health and Welfare are conducting a full survey of whole life insurance subscriptions that name the facility head as the insured across about 30,000 nonprofit long-term care institutions nationwide. The main purpose is to check whether GAs engaged in improper sales during solicitation.
Whole life insurance is a product that pays benefits to the bereaved family when the policyholder dies. Not only individuals but also corporations can enroll. This is because, if the head suddenly dies, the company may need emergency funds to continue operations. However, in this case, the benefit must be used for corporate purposes such as employee welfare, and private use of the benefit raises issues such as embezzlement.
Recently, some heads of care facilities were found to have enrolled in whole life insurance using facility operating expenses supported by the government and then diverted the funds for private use. They enrolled in whole life insurance under the facility's name and paid the premiums, then after a certain period changed the policyholder to themselves and canceled the policy to pocket the surrender value. They exploited the fact that, if the policy is canceled after changing the policyholder, the surrender value goes to the head personally.
In this process, indications also emerged that some care facilities, under consulting from GAs that also serve as tax firms, diverted facility funds in a similar way. The government sees the root cause of this situation as GAs' expedient and illegal sales, and, in cooperation with local governments, decided to conduct a comprehensive inspection of improper whole life insurance subscriptions by care facilities.
Some said insurers abetted illegal acts. Selling whole life insurance products unrelated to business purposes to long-term care facilities itself can be viewed as misselling. The financial and accounting rules for long-term care institutions state, "The budget cannot be used for purposes other than the expenditure budget." Paying premiums with operating funds or making long-term contributions to enroll in whole life insurance unrelated to business are all violations of the rules.
An industry official said, "Having a care facility enroll in whole life insurance or changing the policyholder to an individual is a transaction with potential losses, and insurers should have recognized the possibility of illegality and blocked it in advance." Another industry official said, "At the underwriting stage, insurers could have flatly rejected contracts related to long-term care institutions, but they let them proceed. Now they are emphasizing only GA responsibility."
In the United States, when a corporation or a third party pays the premium, insurers are obligated to verify the source of funds and the purpose of the transaction. Insurers that fail to filter out crimes such as the misuse of public funds through their systems face punitive penalty surcharges amounting to several times the gains from the violation. Korea has similar rules, but the size of the penalty surcharge is limited to 50% of premium income, reducing its effectiveness.
A government official said, "We will also look into whether insurers that allowed enrollment in whole life insurance bear responsibility."