South Korea - New Direct Insurance Guidelines
In November 2015, the South Korean financial regulator, the Financial Supervisory Service (FSS), announced a series of regulatory proposals regarding the supervisory functions of the FSS and the penalty regime for breaches of consumer rights.
The proposals, which have differing implementation dates, were included in the following Guidelines - the “Future Direction for Supervision, Audit and Sanctions for the Insurance Industry” and the “Plan to Strengthen Sanctions on Acts of Infringement on the Rights and Interests of Insurance Consumers”. A summary of the key proposals from these Guidelines is listed below.
FSS involvement in pricing and product development
The FSS intends to relax the current prior-examination process for pricing and product development from April 2016. It will no longer review pricing/product development, unless specifically required by law. As a result, the FSS departments responsible for prior-examination will be downsized.
Enhanced FSS supervision of insurance company insolvency
The FSS intends to enhance its solvency supervision function. New requirements will be introduced over time for insurers to calculate asset concentration risks in RBC returns, and adjust discount rates in liability adequacy testing. New measures will be introduced to allow for the prompt suspension of sales of so called ‘improper insurance products’ (ie new products that are seen as detrimental to consumers and designed to advantage one party only). The FSS will also commit additional resource to help the local industry prepare for International Financial Reporting Standards 4, which is to be implemented in 2020.
Stricter penalties for breaching consumer rights
A new penalty regime will also be introduced in 2016, and will include the following elements:
- increased administrative fines for illegal and unfair acts (ie mis-selling) – with separate fines for each illegal/unfair act;
- possible business suspensions if consumers suffer significant damage, and if internal controls are found to be seriously inadequate or improper;
- severe disciplinary actions against officers and employees if they have taken a ‘leading role’ in conducting illegal and unfair acts; and
- compensation (ie refund of insurance premium) for damages incurred by insureds.