Although global insurance firms are pushing into the Korean market - the world's seventh largest in terms of insurance premiums - the threat posed by foreign rivals is a minor issue next to the challenges created by the proposed Insurance Business Law (IBL). The Bill focuses on overhauling the existing regulations in the insurance sector to meet global standards in terms of asset management, market competition, supervisory systems and consumer protection.
To enhance insurers' autonomy in asset management, the revised law will convert its present positive regulation system on asset management into a negative system. For the purpose of expediting market competition, the Bill proposes lowering the minimum capital requirement for setting up an insurance company that will specialize in a limited number of insurance products. To strengthen the supervisory activities in the insurance sector, an inter-agency coordination system to combat insurance fraud will be established. The new law will also include measures for better consumer protection, such as strengthening the public notice requirements on insurance products and tightening the regulations governing the unfair rewriting of insurance policies.
On January 16 2003, the Ministry of Finance & Economy and the Financial Supervisory Commission jointly announced the basic framework of the new bancassurance scheme, scheduled for implementation on August 2003. The basic framework includes six key issues:
- the government will allow all financial institutions, including banks, brokerage firms and mutual savings companies that meet certain regulatory requirements to sell insurance products;
- the government will liberalize the bancassurance market on a gradual basis;
- the government will prohibit banks and brokerage firms from signing exclusive contracts with a particular insurer;
- to get into the insurance business, banks and other financial institutions may either team up with an insurer or form joint ventures;
- banks will be restricted to "in-bound" sales only; and
- the government will require banks to comply with various regulations on fair competition and consumer protection.
More specific regulations are under consideration.
With the new law lowering barriers to foreign insurance entities, foreigners are expected to enter the market at a faster pace. Although the participation of large banks and brokerage firms in the insurance market will pose great challenges to Korean insurers, the new Insurance Business Law is expected to enhance efficiency and customer convenience in the insurance sector.