Comprehensive overhaul of insurance sales commission system… Strengthening protection of policyholders' rights

Financial Services Commission introduces maintenance fees and expands fee disclosure… Phased implementation by 2027

The Financial Services Commission has announced a new plan to overhaul the insurance sales commission system to protect the rights of insurance policyholders and foster a sound insurance business environment. This overhaul is being implemented as a follow-up measure to the 5th Insurance Reform Conference held in December last year.

The FSC stated, “The basic goal of this reform is to enhance the rights and interests of insurance policyholders by improving investment contract retention rates and strengthening fee transparency.”

No more “lump-sum” fees… New maintenance fees to be introduced

Previously, sales commissions were often paid in a lump sum at the time of contract conclusion, but going forward, the practice of splitting commissions (paying in installments) will be expanded. Initially, advance commissions will be paid within the limit of contract conclusion costs, and the newly introduced “maintenance fees” will be paid monthly for up to seven years. Notably, additional long-term retention fees will be paid during the fifth to seventh years of the contract, which is expected to improve contract retention rates.

Preventing incomplete sales… Introducing a reasonable commission system

To prevent incomplete sales, the role of insurance companies' internal product committees will also be strengthened. Insurance companies must establish their own appropriate expense management systems and categorize the total sales commissions for each product into agent compensation and ancillary costs (common expenses), ensuring they are executed within the planned scope.

Specifically, advance commissions will be paid within 100% of the contract conclusion costs, and maintenance commissions will be paid within 0.8% of the contract conclusion costs per month for seven years. Common expenses will be executed within approximately 19% of the contract conclusion costs.

Consumer protection will also be strengthened

To strengthen consumers' right to know, information on product sales commission rates will be disclosed. The proportions of advance fees and maintenance fees will be broken down and provided in detail. Additionally, large insurance agencies (GA) with 500 or more employees will revise their sales processes to ensure that agents provide consumer-centric comparisons and explanations when introducing products.

During this process, they must explain the sales commission grades and rankings for each product and provide consumers with a list of multiple insurance companies with which contracts can be concluded. The products of the insurance company selected by the consumer must also be included.

Strengthening regulatory enforcement... fostering a healthy sales environment

The “1,200% rule” will be expanded to apply to commissions paid by insurance agencies (GA) to their affiliated agents. Additionally, insurance companies will face actual penalties for excessive business expense expenditures, and the prohibition period for arbitrage transactions will be extended from the first year to the entire duration of the insurance contract.

Positive effects expected for insurance policyholders, agents, and insurance companies

Through this reform, insurance policyholders are expected to see improved contract satisfaction through enhanced maintenance services, and consumer harm caused by unfair contract terminations (unfair switching) is anticipated to decrease. Insurance agents will be able to secure a stable income base through increased contract retention rates, while insurance companies and insurance brokerage firms (GA) are expected to improve operational efficiency through the stabilization of sales channels.

The Financial Services Commission stated, “We will prioritize the protection of insurance policyholders' rights and continue to address issues in the insurance sales field. By 2026, we plan to expand comparative disclosure and GA regulations, and fully implement the maintenance fee distribution system starting in 2027.”

[News source : Financial Services Commission]