Life insurers appear to have sharply increased expenses ahead of the so-called "1,200% rule," which applies to corporate insurance agency (GA) agents. The 1,200% rule limits the commission paid to agents in the first year of a policy sale (including settlement support payments) to within 12 times the monthly premium, and it took effect in July. Insurers seem to have spent heavily to secure top-performing agents before the rule took effect.
According to the Korea Life Insurance Association on the 26th, business expenses deployed by 22 life insurers between January and May this year totaled 11.0977 trillion won, up 11.7% from the same period a year earlier (9.9329 trillion won). The cumulative business expenses of Samsung Life Insurance(032830) reached 2.2604 trillion won, up 10.7% from a year earlier. During the same period, business expenses at Hanwha Life Insurance(088350) (2.0154 trillion won) and Kyobo Life Insurance (1.1749 trillion won) also rose 9.6% and 3.6%, respectively.
Business expenses are the expenses insurers spend for soliciting, maintaining, and managing insurance contracts. Advertising costs, administrative costs, and labor costs are included. In general, the acquisition commissions paid when captive agents and GA agents recruit new subscribers are known to make up the largest share.
With the 1,200% rule in effect, commissions for insurer-affiliated agents and GA-affiliated agents have become the same. Insurers were already subject to the 1,200% rule, while GA-affiliated agents received higher commissions. As equalized commissions make it harder for GAs to recruit top agents, the industry appears to have offered high settlement support payments in the first half of this year to preempt talent, intensifying the competition to secure them.
Life insurers are facing intensified competition with non-life insurers in the third-sector insurance space as revenue from their traditional flagship product, whole life insurance, has declined. Third-sector insurance refers to products that both life and non-life insurers can offer. Typical examples include disease, accident, child, and health insurance.
According to the Korea Insurance Development Institute, the annual first-year premiums for third-sector insurance (non-death protection) collected by life insurers last year came to 758.2 billion won, a surge of 63.9% from the previous year (462.6 billion won. During the same period, first-year premiums for non-life insurers' third-sector insurance (long-term protection policies), excluding driver and property coverage, reached 929.1 billion won, up about 4% from last year (893.3 billion won).
First-year premiums refer to the premiums insurers collect for the first time after signing a contract with a subscriber and are used as a business indicator. Although third-sector insurance is a market where non-life insurers hold a majority share, recent pushes by life insurers are changing the landscape.
A life insurance industry official said, "It appears more life insurers actively executed business expenses in the first half, prior to the implementation of the 1,200% rule."