Commission cap on insurance agents extended to GA-affiliated sellers

The "1200% rule" — a commission regulation previously applied only to exclusive insurance agents — will extend to agents affiliated with general agencies (GAs) starting Wednesday.

The Financial Services Commission and the Financial Supervisory Service announced Tuesday that the revised insurance sales commission framework, rolled out in stages since the Insurance Business Supervision Regulation was amended in January, will take full effect Wednesday following preparation with industry groups and consumer organizations.

The 1200% rule caps the commission an agent receives in the first year of a policy sale at 12 times the monthly premium. Introduced in 2020, the rule has applied to exclusive insurer agents but left GA-affiliated agents outside its scope. The revision eliminates a structure in which agents selling the same product could receive higher commissions simply by working for a GA.

While the 1200% rule already applied to commissions that insurers paid to GAs, the regulation broke down at the next step — when GAs distributed that money to their own agents. That gap gave GAs an incentive to attract agents by offering higher commissions than those available through exclusive insurer channels, fueling a steady flow of talent from insurers to GAs.

Ahead of the new regime taking effect, an overheated recruitment competition broke out among large GAs. As firms rushed to lock in top agents before the limits were equalized, some GAs were accused of skirting the rules by drawing on additional insurer incentives or raising relocation bonuses.

Starting Wednesday, not only first-year commissions but also relocation support payments, incentive commissions and most other costs that GAs pay to agents will fall within the same cap. Financial regulators expect the move to eliminate regulatory arbitrage between sales channels, strengthen the rule's effectiveness and reduce excessive commission competition.

The changes also affect consumers. From the same date, large GAs with 500 or more affiliated agents must disclose the commission rating and ranking of any product they recommend when soliciting a policy. Until now, consumers had no way to tell whether an agent was recommending a product because it suited them or because it carried a high commission — a concern consumer groups have long raised, arguing that high-commission products were being pushed without disclosing the financial incentive.

Under the new system, a comparative disclosure form will show consumers how the commission rating of a recommended product compares with similar products, and where it ranks among the agent's recommended options.

Commission ratings are divided into five tiers based on comparison with the average for similar products: "very high" (more than 130% of the average), "high" (110–130%), "average" (90–110%), "low" (70–90%) and "very low" (below 70%). A lower ranking indicates a less expensive commission product. If a preferred insurer's product does not appear on the recommended list, consumers may ask the agent to include and explain it.

Financial regulators will operate a sales commission reform implementation support center for six months through the end of this year, in partnership with the Korea Life Insurance Association, the General Insurance Association of Korea and the Korea GA Association. The center will intensively monitor regulatory circumvention such as irregular commission payments, and cases of serious rule violations will be referred immediately for inspection.

Meanwhile, a staggered payment system — under which commissions currently front-loaded in the first year will be spread over four years — is set to launch in January, with the distribution period extending to seven years from 2029.