It is generally not complicated to comprehend the regulations on products subject to ‘File and Use’ (Article 127 of the IBL and Article 71 of Presidential Decree of IBL); however, there are some complicated cases for local insurers to determine whether the product being introduced is ‘File and Use’ or ‘Use and File’, when introducing new product that is sold in foreign market because the standard in the Presidential Decree of IBL to distinguish between ‘File and Use’ and ‘Use and File’ provided is rather general to apply. Therefore, in practice, the local insurers need to consult with FSS when it intends to introduce relatively new product to determine whether it is the product of ‘File and Use’ or ‘Use and File’ to avoid the regulatory exposure of the product related regulations.

To redress this problem, detailed and specific regulations need to be provided with negative approach.(i.e. enumerating specific types or standard for the product subject to ‘File and Use, thereby allowing all other products to be ‘Use and File’) regarding those aspects of the products which the local insurers or the regulators have difficulty in introducing or allowing, in light of the public sentiment and other financial environment.

FSS issued Best Practice Guideline for Reinsurance Management for Insurance Companies in 2005. The Guideline includes basic principles of reinsurance management, responsibilities of BOD and management, and internal control system related to reinsurance. Generally, the Guideline was prepared based on global standard such as IAIS recommendations. However, still there are some rooms for improvement as following.

The Guideline has some burdensome requirements such as

i) "clear and written procedure" regarding risk ceding limit and reinsurance limit by each class, or

ii) reinsurance information management system to check reinsurance records and reinsurer’s financial soundness.

FSS examination focuses on

iii) the size of deficit/losses caused from reinsurance transaction rather than judging the appropriateness and soundness of reinsurance transaction,

iv) possibility of tax evasion bypassing local branches and contracting with foreign reinsurance companies directly,

v) possibility of money transfer among and between same Group companies, or

vi) by product such as solvency ratio caused from reinsurance transaction.

FSS examination should be focused whether the Company observes the Guideline or not. The Guideline should be flexibly interpreted based on the size of the Company and the size of reinsurance business of the Company. The test of reinsurance business should be based upon rationality, fairness, or soundness of transaction, not the size of deficit/losses caused from reinsurance transaction or the relationship of parties of transaction.

In May 2006, the Korea Life Insurance Association (KLIA) issued the ‘Regulation for Advertisements of Insurance Companies’. Pursuant to this Regulation, the KLIA is operating the Advertising Review Committee for the purpose of a prior (in case of Variable products) or ex post facto review of the advertisements of all products of insurance companies other than Variable product. This Review Committee of KLIA includes employees of member companies. KLIA is given the authority to request an amendment to the advertisement materials or impose sanctions against member companies according to the outcome of the review by the Review Committee.

KLIA is a self-governed institution voluntarily established by its member companies for the purpose of maintaining sound order among insurers and promoting the development of insurance business under the Insurance Business Law (IBL). However, the regulatory authority delegates to the KLIA its own regulatory power such as prior and post review of the advertisements. Further, the KLIA is delegated with the power to impose fines and even setting up the regulatory standards for such sanctions. Such delegation of regulatory authority to an industry association is unprecedented in other regions and inconsistent with the international practice. It also does not seem to fit Korea’s aspiration to become the financial hub of the region. Also, the operating mechanism surrounding the Review Committee within the KLIA whereby member companies may contribute to a decision to impose regulatory sanctions against other members companies should be redressed.

A long-standing discussion or debate for the past few years on legislating a special law dealing with the so-called special type workers including insurance sales agents is still outstanding. The most recent discussion on the subject involves the Fair Trade Commission (FTC) to subject insurance sales agents to the Fair Trade Law.

This development causes confusion to various parties concerned and the burden is being increased to insurance industry. The positions taken by the Ministry of Labor, as well as the Tripartite (Labor/Employer/Government) Committee and that of the FTC are inconsistent, as labor groups would want to consider insurance agents as ‘quasi-employees’, whereas the recent development with the FTC is one that recognizes them as ‘Independent Contractors’. To redress this problem of inconsistency, so long as insurance agents are to be under the jurisdiction of the FTC’s authority, the drive for legislating a ‘special employees’-related law by the Tripartite Committee should be closed.

In respect of outsourcing asset management services an insurer is required to outsource only after an open tender process. This seems inefficient in the case when the insurer had previously done the work in-house and was outsourcing to create better synergies through shared services. In some cases there is an implicit assumption that arm’s length transactions can only be established by using more than one service provider. This can increase the complexity of the business and potentially increase the business risk for an insurer.

Where there is a business case for shared services, such as outsourcing asset management services, to a related affiliate it should be possible to use a single service provider given that the transaction is benchmarked and contracted on an arm’s length pricing basis.

At the moment insurance law only allows companies to distribute commission from the loadings taken on the premium.

It would be beneficial if commission could be liberalized reflecting income from commission loading based on the average portfolio commission assets under management and possible other income sources reflecting a secure cash flow.

The frequent regulatory changes in the pricing rules (e.g. acquisition cost loadings, new mortality tables) place a heavy burden on insurers and confuse customers.

More autonomy can be provided to the insurers themselves in their pricing.

Changes to regulations often take place without notice or with little time to provide comments - typically just 2 to 3 days. Often the comments that are provided are not fully addressed.

A fairer approach needs to be applied that allows all companies to contribute their views in a reasonable timeframe and with all comments received being addressed.

Korea Post and National Agricultural Cooperative Federation (NACF), plus certain other cooperatives (“Quasi-Insurers”) are engaged in insurance business and directly compete with private sector insurers without being subject to any of the laws or regulations or regulatory supervision governing insurance business in private sector. Korea Post is not subject to product approval requirements, no inspections, no contribution to policyholder protection funds, no reserve or solvency requirements, risk management, among others. Further, customer protection mechanism is missing in Korea Post’s sale of insurance products as its sales personnel need no license to solicit insurance products, unlike those agents of private insurers.

Private insurers are not on level regulatory playing field with the Quasi-Insurers and, this is against Korean government’s WTO commitment to provide National Treatment to foreign companies doing business in Korea. It is also against the notion of fairness and free competition embodied in the Monopoly Regulation and Fair Trade Act of Korea. It seems to be inappropriate to appoint the Ministry of Communication (“MIC”) to supervise insurance business of Korea Post, because the MIC not only lacks in the expertise in insurance business, but also is the very authority governing Korea Post, and hence, will be tantamount to regulating itself if it is to oversee the insurance business of Korea Post. Unfair competition and discriminative problems faced by private insurance companies would not be solved with this measure. To achieve a true resolution with regard to the problem of unequal regulatory conditions between the private sector insurers and the Quasi-Insurers, the supervisory authority regarding insurance business of the Quasi-Insurers, including the Korea Post, should be given to the FSS or the privatization of their financial businesses must be realized.

Financial institutions such as banks are allowed to sell up to maximum 25% in gross sales of one insurance product provider.
Sales up to 33% is allowed in case the gross sales comprise of that of multiple insurers which are within one joint venture structure.

Under Paragraph (6) of the Decree, the sales amounts of the insurance products of insurance companies having each of the following relations with the "insurance company under the agency agreement with the relevant financial institution agency" ("Concerned Insurer") shall be aggregated for the purposes of calculating the sales amount under the above Paragraph (5) to determine whether the statutory ceiling of 33% has been exceeded.

In addition, the insurance Business Supervision Regulation ("IBSR"), an internal regulation of the FSC, stipulates that

i) Deleted (April 1, 2005)

ii) The insurance company that was incorporated in the form of a joint venture (hereinafter, limited to a joint venture in which each party is the largest shareholder or owns at least 15% of the shares) between the Concerned Insurer and the financial institution agency;

iii) The insurance company that was incorporated in the form of the joint venture between the financial institution agency and a domestic or foreign company that holds 15% or more shares in the Concerned Insurer;

iv) The insurance company that was incorporated in the form of the joint venture between the financial institution agency and the holding company of the Concerned Insurer

v) The insurance company that was incorporated in the form of the joint venture between the holding company of the financial institution agency and the Concerned Insurer; and

vi) The insurance company that was incorporated in the form of the joint venture between the holding company of the financial institution agency and a domestic or foreign company that holds 15% or more shares in the Concerned Insurer.

The 33% limitation is in fact a more stringent version of the 25% limitation discussed above. it restricts a financial institution agency’s aggregate sales of insurance products offered by insurance companies having a certain relationship with such agency, to 33%. Therefore, it is understood that, in cases where a financial institution has shareholdings in insurance companies, sales by such institution of insurance products offered by those insurance companies will be subject to the 33% limitation on an aggregated basis, not the 25% limitation on an individual basis.

In this connection, for the purpose of this 33% limitation, if a financial institution (or its holding company) has 15% or more shareholding in a concerned Insurer and at the same time has 15% or more shareholding in another insurance company, the Decree requires an aggregation of sales figures for those two insurance companies.

On the other hand, the IBSR further expands this requirement and requires the scope of the aggregation includes an insurance company that has been established as a joint venture between a concerned insurer (or its domestic or foreign shareholder that has 15% or more shareholding or such shareholder’s holding company) and the financial institution agency (or its holding company).

Such a broad application of the 33% limitation under the IBSR may become problematic when the financial institution agency does not have any shareholding in the concerned insurer. In other words, in the case of (iii), (iv) and (vi).

In such cases, the concerned insurer suffers disadvantage even if it does not have any shareholding relationship with the financial institution agency.

Therefore, we would like to suggest that Article 4-15, Paragraph (3), Items (iii), (iv) and (vi) of the IBSR should be deleted.

The strict regulation on handling domestic data overseas creates difficulty in the cost-efficient operation of global companies. Privacy laws prevent the transfer of customer information to overseas affiliates even for purely data processing purposes.

Products which need an international pooling and cross border administration in order to minimize risks of local insured population can not be developed under Korean portfolio due to the fact that data cannot be submitted to the pooling entity (Typical example: Expatiate Cover).

The IBL should be amended accordingly

Insurance companies are allowed to use own sales fore (tied agents, solicitors); Untied agents, broker, etc.; Banks (limited access) as distribution channel.

An insurance company cannot use the sales channel like insurance solicitors of other insurance companies.

Under the IBL, any insurance solicitor should be the exclusive solicitor of one insurance company and cannot perform the insurance solicitation for any other insurance companies.

Change in regulation will allow
cross-solicitation by an individual insurance solicitor under limited conditions.

Any insurance solicitor belonging to a life insurance company can perform the insurance solicitation only for one non-life insurance company;

Any insurance solicitor belonging to a non-life insurance company can perform the insurance solicitation only for one life insurance company; and…

Any insurance solicitor belonging to a life insurance company or a non-life insurance company can perform the insurance solicitation only for one third insurance company

The Ministry of Finance and Economy (“MOFE”) should consider a clarification of the IBL to clearly allow an insurance company to sell the insurance products of other insurance companies as its incidental business as usual practice in European countries

Rationale:
EUCCK favors the cooperation on company level and not on solicitor level. Contracting on solicitor level will lead to higher administration cost and unstructured cross selling and unclear customer approach yet:A co-laboration on company level will lead to a higher standard of agents education, continued customer support and decreased administration cost. This all together will guarantee a high extend of consumer protection. It will also attract specialized companies to enter the market which otherwise would not be able to achieve the necessary volume capacity to run a high

The Korean regulation requires customers to be identified in person (by visiting a branch office) in order to validate the digital certificate. This identification is needed in order to use online services like balance inquiry and payment transactions for policy loans and/ or redemption.

As life insurance products are generally not sold via employees of insurance companies but either via contractors or direct (online or via a call centre), face to face contact between the client and the insurance company is largely non-existent in the sales process. Efficient and fast customer service via internet or call centres requires from the customer to first visit an insurance branch for identification. Despite technical possibilities to avoid this inconvenience, there is no regulation in place to do otherwise. Furthermore; insurance companies are forced to maintain expensive branch networks. Such costs are reflected in the premiums charged to clients. Online service transactions increased rapidly in the insurance market, indicating a clear appetite from consumers.