Foreign insurance firms: perfect localization?

By Kim Tae-gyu

The time-honored rule of thumb in tapping into the foreign market is that a company should understand the local situation so as to survive and thrive in competition with homegrown players.

Multinational insurers in Korea seem to have learned that lesson and succeeded in localization but in a negative way ― they colluded with Korean insurance companies to pocket profits by unfair means.

Late last week, the Fair Trade Commission (FTC) levied a total of 365.3 billion won ($316 million) in fines on 12 insurance firms, which unlawfully lowered interest rates of their products between 2001 and 2006.

The artificially low interest rate below the market norm means that clients pay more every month for a specific amount of insurance. In other words, the firms in question fixed rates to rake in revenue at the cost of their customers.

The country’s top three players of Samsung, Kyobo and Korea Life were forced to pay 340.6 billion won, or 93.2 percent of the overall penalties.

Although the amounts are relatively small, three global insurance companies, Metlife, ING and Allianz, were also caught in the rate fixing scheme. The news is disappointing because they have claimed that integrity and transparency are their top priorities.

You cannot sincerely or transparently fool customers. No matter how little the fines are the firms are culpable.

The case reminds people of another FTC ruling early last month on a set of drug producers, which the anti-trust watchdog claimed offered “rebates” to encourage doctors to prescribe their products.

Such international entities as Sanofi-aventis and Yansen were found to have spent more than 15 billion won in illegal kickbacks between 2006 and 2009.

In both the cases of the insurance and pharmaceutical industries, all the companies at issue might argue that they followed local practices. Perhaps so, but it does not vindicate them.

This reporter does not want to say that we have double standards, which are stricter for foreign brands than local ones. Under the rule of law, both are required to comply with the relevant regulations without exception.

The FTC slapped more fines on domestic firms in both cases. Hence, we can say that they were worse than their international competitors.

Yet, Koreans have expected that such world renowned companies as Metlife and Yanen would be different ― they should have spread global standards to the domestic market so that local players could learn.

Some have certainly performed that job and Korea owes a great deal to them in raising corporate ethical standards. But some seemingly put profit first, whether legally or illegally, unlike their beautiful company mottos.