The financial authorities' plan to reform commission fees for insurance planners, which was opposed by the corporate insurance agency (GA) industry, will be gradually implemented starting in 2027. As it is a measure to prevent excessive commission competition, assessments indicate that it will open up avenues for customers to maintain contracts over the long term and receive reasonable insurance products.
According to the insurance industry on the 7th, the financial authorities held a presentation on the commission reform plan on the 30th of last month, announcing the application of the GA-affiliated planners' '1200% rule', partitioning of commission payments, and plans for commission disclosure. The financial authorities have determined that customer harm arises from commission competition within the insurance industry and are pushing for a reform plan to control commissions to a certain extent. The financial authorities plan to disclose the final version after completing the final adjustments.
The 1200% rule means limiting the commission that planners receive within 1200% of the monthly premium for the first year after the contract. This has only applied to exclusive planners of insurance companies until now, but it will now be expanded to include GA-affiliated planners as well. As the insurance sales market is being restructured around GAs, the impact is expected to be significant.
Starting in 2027, partitioning of commission payments is expected to be gradually implemented. Planners have been receiving commissions in lump sums within 1 to 2 years after selling insurance products. The financial authorities have proposed a plan to distribute commissions over a maximum period of up to 7 years. If planners receive all their commissions in a short period, there is no need to manage or maintain customer contracts. There have also been concerns that insurance companies continue to pressure customers to sign up for unnecessary new products to receive further commissions.
The most controversial commission disclosure plan has settled on publicly releasing grading information. The GA industry has criticized that if the commissions planners can receive are disclosed, customers might demand part of the commission back as a condition for product subscription, leading to significant negative effects. For this reason, the financial authorities have decided to proceed with a plan to disclose commissions by categorizing them into five levels: very high, high, average, low, and very low.
The insurance industry expects that once the reform plan is implemented, excessive commission competition and problems related to enticing planners will decrease. If GA-affiliated planners fall under the 1200% rule, the phenomenon of changing jobs multiple times due to high settlement support funds is expected to diminish. When a planner changes jobs, there is a lower likelihood that existing contracts will be managed properly; such contracts are referred to as 'orphan contracts'.
In particular, projections indicate that the establishment of commission distribution and maintenance commissions will lead to an increase in contract retention rates. When planners receive commissions on the condition that contracts are maintained, it is expected to reduce unfair switching and encourage efforts towards contract maintenance and management. According to the Financial Supervisory Service, the retention rate for contracts for planners who start not receiving commissions in the third year is less than 50%.
Currently, planners receive 1150% of the monthly premium in the first year after signing a contract, 850% in the second year, totaling 2000%. However, once the reform plan is implemented, they will receive 1150% in the first year and 460% in the second year, respectively. The commission received in the first year remains the same, but it decreases by 390% in the second year.
Instead, from the third year, they will receive a maintenance commission of 90% for every year the contract is maintained, for up to 5 years (7 years after the contract). If the contract is terminated in the third year, the total commission will decrease from the previous 2000% to 1610%, but if the contract is maintained for 7 years, the total commission will increase to 2060%. The longer the contract is maintained, the higher the commission that can be received.
As the importance of contract retention rates has increased, analyses have suggested that customers are now more likely to receive reasonable product recommendations. Many GA planners have been criticized for recommending or encouraging products with the highest incentives (paid in addition to commission) rather than selling the products most suitable for customers.
However, there are concerns that some GAs may undermine the reform plan by creating various awards to compensate planners' incomes. Although the GA industry has taken a step back, proposing compromise solutions regarding the reform plan, dissatisfaction is growing. An insurance industry official noted, 'When the 1200% rule was first introduced, there was also a tendency to effectively compensate planners' incomes through indirect methods,' adding, 'Whether the reform plan leads to the intended results will need to be observed over time after implementation.'