Consumers welcome insurance policy revision

By Lee Kyung-min

Kim Sun-young, a 32-year-old office worker, is considering whether to increase her insurance payments to cover dementia for her parents after news reports that monthly premiums will decrease by around 3 percent and reimbursements following cancellation of policies will be larger.

“My parents are nearing the age of 65, a point where they are at greater risk of dementia,” Kim said.

“Some people I know told me that once they are diagnosed with the age-prone condition, it will be nearly impossible to care for them without a full-time helper, not to mention the expensive cost. I think it may not be such a bad choice to increase my subscription payments now that premiums will be lowered, albeit a little,” Kim said.

Her decision comes after the Financial Services Commission (FSC) outlined a comprehensive insurance policy revision plan Aug 1.

Under the measure, the government has put a ceiling on the commissions taken by general agency officials, the performance-based, insurers-hired marketers that have thus far charged up to 17 times the monthly premium per new contract they land.

Staring January 2021, the officials will not be able to charge commission fees over 12 times the monthly premiums, meaning they will get only up to 1.2 million won ($1,000) per contract with a 100,000 won monthly premium.

The revision followed consumer opinions that serious problem among the officials was the soaring number of “fraudulent contracts,” they created.

They have long pocketed of up to around a couple of million won, the difference between monthly premiums and up to 17 times the commission they charged.

“Most officials receiving up to 90 percent of their commissions in a lump sum, within a year after they landed a new contract was deemed the gravest problem,” a FSC official said.

However, the measure will not be binding to fees charged a year after subscription, a measurer reflective of criticism that excessive government intervention in determining market prices will hamper capitalist principles.

The FSC also ordered an increase in the reimbursements paid to customers who cancel their subscription before maturity, with the return rate expected to jump by up to 15 percentage points.

This will be possible as the amount of cash incentives paid to agents for landing contracts will be reduced by 30 percent.

The Korea Life Insurance Association (KLIA) official said the revision will help improve consumer trust with the insurance industry and promote healthy marketing campaigns.

“The most important aspect of the revision is to prevent and eliminate problematic marketing activities by general agencies, which have long tarnished our image with consumers,” a KLIA official said.

“The FSC measures, which fully reflected industry opinion in advance, will help outline business strategies with more focus on strengthening consumer coverage,” he added.

Meanwhile, criticism remains that general agencies will find ways to charge greater commissions for contracts a year after the initial subscription.