FSS chief says full inspection of large insurance agencies under review

Financial Supervisory Service chief Lee Chan-jin said Monday that the FSS intends to use the current controversy over exploitation of insurance agents at large general agencies, or GAs, as an opportunity to properly establish a regulatory framework and prevent a recurrence. He noted that a comprehensive insurance business law reform bill introduced by lawmakers on the National Assembly's Political Affairs Committee already addresses the issue.

Speaking at the FSS national audit held by the Political Affairs Committee, Lee said the agency is reviewing a proposal by Rebuilding Korea Party lawmaker Kim Hyeong-yeon to conduct a full inspection of large GAs. "We are currently reviewing that," Lee said. "I hope you will create the conditions for us to carry out our supervisory duties diligently so that we can properly establish a regulatory framework for GAs and prevent these things from happening again."

The central issue at the audit was Incar Financial Service's practice of "punitive commission clawbacks." According to industry sources, when an insurance policy lapses after just two or three premium payments, Incar Financial Service recovers up to 120 percent of the recruitment commission it had paid to the agent — meaning agents must return more money than they originally received. The company adopted the punitive internal rule on the grounds that policies canceled within three months of signing cannot be considered legitimate contracts.

Kim said the clawback standard, which is more severe than those applied by insurers themselves, could push young agents into credit default, and urged the FSS to conduct a further investigation. If an agent cannot repay the clawback amount, the sum is recovered through a surety insurance policy the agent signed upon joining the company, which can then lead to debt collection proceedings against the agent. "Insurance business supervisory regulations prohibit requiring agents to take out surety insurance for the purpose of commission clawbacks," Kim said. "Please also investigate whether this regulation has been violated."

Kim had raised the same issue at the Financial Services Commission national audit on Oct. 8, and said his office has since received a stream of related tips. Beyond the three practices he had previously flagged — the 120 percent punitive clawback, deductions for customer data purchases, and debt collection through surety insurance — a tip had come in about a GA that, after surging insurance payouts blocked agents from obtaining surety coverage, began using promissory notes in a structure where the parent company injects capital. There were also reports of a GA deducting 5 percent of commissions under the guise of risk reserves. "They are extracting money in all sorts of ways," Kim said.

Weak internal controls also came under scrutiny. "In the case of Incar Financial Service, sales and profits are growing and it has 25,000 agents, yet I am told it has only one auditor and no staff to support audit functions," Kim said.

Incar Financial Service pledged, in response to the audit, to scrap the 120 percent punitive clawback standard and cap all clawbacks at 100 percent of the amount paid. The company also said it would strengthen its audit team and review and improve structures that place excessive burdens on agents. Kim asked the FSS to jointly verify whether the commitments are kept, and Lee said, "We will confirm that."

Kim pressed for more systemic action. "How long are we going to supervise the GA industry by summoning witnesses to national audits, extracting promises of improvement, and then checking back to see if they were kept?" he said. "Now that predatory exploitation by GAs has become a major issue, the FSS must step in and conduct a full inspection of large GAs."