Starting in July, the so-called "1200% rule," which limits sales commissions, will also apply to corporate insurance agencies (GA·General Agency). The Financial Supervisory Service issued a consumer alert on the 11th over "improper replacement" of insurance contracts stemming from intensifying competition to recruit agents.
The 1200% rule is a system that caps first-year sales commissions at up to 12 times the monthly premium. It is intended to curb excessive expense competition, but the industry warns that performance rivalries among agents could intensify before the system takes effect.
In particular, some agents may try to induce customers to cancel existing contracts—so-called "switching insurance"—to cover advances they received. If an existing policy is canceled midterm, the policyholder may lose surrender value, and during enrollment for a new policy, changes in health status could limit coverage or even lead to rejection. For cancer insurance and similar products, a new waiting period applies upon re-enrollment, which can result in no benefits being paid for a certain period.
The premium burden also increases. According to the Financial Supervisory Service (FSS), one consumer who enrolled in cancer insurance at age 30 with a monthly premium of 21,000 won re-enrolled at age 45 and saw the premium rise to 61,000 won per month, while the coverage showed little difference.
The Financial Supervisory Service (FSS) urged consumers who are solicited to switch insurance to carefully compare the differences between the existing and new contracts and to keep the comparison confirmation form and explanatory materials. If improper replacement is recognized within the same insurer, policy reinstatement within six months of the existing contract's termination date or cancellation of the new contract is also possible.
The Financial Supervisory Service (FSS) plans to strengthen comparison and guidance procedures and expand disclosure of replacement contracts, while launching on-site inspections of insurers and GAs that pay excessive settlement support funds or show many suspected cases of improper replacement.