FSS puts insurers on notice over GA internal control failures

The Financial Supervisory Service held its "2026 First-Half Insurance Company Internal Control Workshop" on Tuesday, calling on insurers to strengthen oversight of risks arising from third-party sales delegation.

The workshop, held Tuesday afternoon at the FSS training center in Tongui-dong, Jongno-gu, Seoul, drew more than 100 audit department executives and staff from 22 life insurers and 17 non-life insurers. Unlike previous sessions, which were limited to working-level audit staff, this year's event included senior executives, who joined a discussion on key internal control issues chaired by the head of the FSS insurance inspection bureau.

The FSS said personal credit information leaks and illegal or irregular sales practices through some general agencies, or GAs, have occurred repeatedly. Concerns about information security across the industry have grown after a hacking incident at an IT firm that provided sales support systems to GAs exposed the personal data of policyholders at multiple agencies.

The regulator stressed that insurers, as the delegating parties, bear ultimate responsibility for risks and consumer harm arising from sales delegation. It urged companies to upgrade their GA risk management frameworks in line with the Guidelines on Third-Party Risk Management for Insurance Companies, which took effect in December last year.

The FSS also called on insurers to impose sanctions and contractual penalties under internal control standards on GAs found to be involved in illegal or irregular conduct, and to conduct self-assessments of how GAs handle personal credit information and address any shortcomings.

Starting Wednesday, the so-called "1200 percent rule" — which caps the commission an insurance agent can receive in the first year of selling a product at 12 times the monthly premium — will be extended to GAs. The FSS warned that the market could become disorderly ahead of the rule's implementation, with insurers competing to poach agents and designing irregular incentive schemes. It also said the risk of improper policy switching is high, as fierce competition over recruitment support payments could push agents to pursue aggressive sales targets.

The FSS had issued a consumer alert at the "Caution" level on May 13 over concerns about improper policy switching driven by excessive competition in recruitment support payments.

The FSS also plans to tighten its product supervision framework. Since insurance product liberalization in 2015, nearly all products — about 99 percent — have been developed and sold as self-regulated products, accelerating short-term earnings-driven competition. The regulator said defective products that generate third-party risks, such as insurance fraud and excessive non-covered medical treatments, are adding to the social burden.

The FSS asked insurers to strengthen the accountability of their product committees, operate consumer-centered key performance indicator systems, and reinforce internal controls across the product life cycle. A focused review of consumer-oriented product internal control frameworks is also planned for the second half of the year.

"As the financial supervision and inspection paradigm has shifted toward prevention, insurance companies must build and operate internal control systems with consumer protection as a core principle," an FSS official said.