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Concerns growing over non-life insurers' rising marketing fees
By Lee Kyung-min
By Lee Kyung-min
Major non-life insurers are found to have increased marketing fees to boost market capitalization, raising concerns that consumers will end up shouldering the costs in the form of increased premiums.
The collective move comes ahead of implementation of revised insurance policies set to take effect 2021, after which the firms will no longer be able to spend as much on per-contract incentives for sales agents, better known as general agency officials.
According to General Insurance Association of Korea, the nation's 31 non-life insurers spent over a combined 7.2 trillion won ($5.9 billion) in marketing fees in the first five months of 2019, a 6.4 percent increase from a year earlier.
Of them, the top 10 industry players spent over 6.5 trillion won, up 7.6 percent from the year before.
They saw a subsequent increase in marketing fee rate ― the rate of marketing fees spent from the companies' premium income.
The 31 non-life insurers' average marketing fee rate jumped to 21.5 percent, up 0.6 percentage points from a year earlier.
The top 10 players' rate increased to 22.1 percent, up 0.9 percentage points from a year earlier. The jump raised an alarm because it exceeds 22 percent, the market-appropriate rate.
Those whose rate was over 22 percent included MG, DB, Hanwha and Heungkuk. Samsung and Hyundai saw their rates jump to 20.9 and 21, respectively.
Meritz Fire & Marine Insurance has seen the rate jump the highest ― to 28.7 percent in the first half of 2019.
The jump came as they allocated 873.6 billion won in marketing fees in the January-May period in 2019, up about 24 percent from 704.3 billion won a year earlier.
The move has helped the fast-rising mid-tier firm see 78 billion won in sales derived from new contracts in the first half of 2019, a 33 percent increase from a year earlier.
The fees, spent on landing new subscriptions of insurance products involving pets and dementia, were much-needed as the long-term products will help the firm with steady profit.
Competition will become fiercer in the coming months to land as many new customers as possible, ahead of the insurance policy revision which has put a ceiling on the commissions taken by general agency officials.
“Staring January 2021, general agency officials ― the performance-based, insurers-hired marketers ― will not be able to charge as much commission fees as they do now, a reason that could further drive up the competition,” said an official at the Korea Insurance Research Institute.
The measure outlined by the Financial Services Commission (FSC), seeks to eliminate “fraudulent contracts,” created by the officials who can pocket the difference between the monthly premiums and up to 17 times the commissions they charge.