On June 28, 2016, the Financial Services Commission (″FSC″) announced the proposed legislation to partially amend the Insurance Business Act (″Proposed Amendment″) with a goal to, among other changes, deregulate insurance companies' investment protocol and practices.
The Proposed Amendment is expected to be submitted to a plenary session of the National Assembly in the near future.
- Requirements for expanding
insurance product lines clarified, and procedures for holding
As a prerequisite to the FSC's authorization, the Proposed Amendment clarifies that if a licensed Korean branch of a foreign insurance company intends to add an insurance product line to its existing insurance business, the branch must prove that the head office is engaged in the same insurance business (i.e., insurance product line).
No approval from or report to the Korean regulatory authorities is required for an insurance company to hold a financial company as a subsidiary, so long as the required prior registration or approval to establish and/or become a major shareholder of the financial company was/were obtained in accordance with the applicable laws.
- Deregulation of product
development and asset investment
In most cases, the Proposed Amendment will permit insurance companies to file the basic insurance product documents to the Financial Supervisory Service ("FSS") after the launch of the new product (i.e., ″use and file″).
In exceptional cases, prior filings will be required (i.e., ″file and use″).
Also, the Proposed Amendment would abolish various asset management regulations that limit the amount an insurance company can invest for certain specific asset types (as prescribed by the law). However, the regulations limiting investments in, or loans made by, an insurance company to its controlling shareholder and affiliates must remain unaffected.
- Requirement to verify the
appropriateness of policy reserves enhanced.
The Proposed Amendment would require an insurance company to verify the appropriate amount of its policy reserves by an independent third party actuary.
introduced – an insurance company (and its agents)
must verify: (i) overlapping coverages on indemnity medical
insurance; and (ii) a system to evaluate the understanding of
product information materials.
The Proposed Amendment imposes administrative fines of up to KRW10 million:
- Triggered if an insurance company and its agents engaged in insurance solicitation fail to comply with the obligation to verify overlapping coverages for an insurance applicant on indemnity medical insurance during the solicitation process.
- Fair competition reinforced
between and among insurance companies and mutual aid
The Proposed Amendment allows the FSC to request other competent authorities supervising mutual aid organizations. This enables the FSC to consult on matters not only relating to the subject products, but also to assess their financial soundness.
It also newly establishes related subordinate provisions to allow the competent authorities supervising mutual aid organizations to make joint inspection requests to the FSC, if needed, to ensure their financial soundness.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.