Revamping the Insurance Landscape: Is It Time to Overhaul Liability Structures and Regulatory Measures

Insurance Research Institute ‘Insurance Law Review – Review of Differential Regulation Measures for the Liability Structure System’
“We need to refer to the cases of the UK, Australia, and Singapore”

Financial Supervisory Service Chairman and Insurance Company Representatives. Yonhap News

[파이낸셜뉴스] As the recently revised Financial Companies Governance Act goes into effect, requiring all insurance companies to prepare and submit a responsibility structure chart within the next one or two years, there is analysis that Korea should also refer to overseas cases and discuss introducing differentiated regulations based on company size, etc.

On the 1st, Yang Seung-hyun, a researcher at the Insurance Research Institute, stated through a report titled “Insurance Law Review – Examination of Differential Regulatory Measures for the Accountability Structure System,” “This revision is expected to contribute to autonomous and effective internal control by financial companies, but it is expected that small financial companies will face operational difficulties due to the increased burden of regulatory compliance.”

Earlier, on July 3, the Financial Company Governance Act (hereinafter referred to as the “Financial Company Governance Act”) went into effect to introduce the responsibility structure diagram and internal control and risk management (hereinafter referred to as “internal control, etc.”) management obligations. Accordingly, financial companies must not only determine the responsibilities within the company that require internal control, etc. and distribute them without duplication, omission, or bias, but also, whenever the position or responsibilities of the executives to whom the responsibilities are allocated change, they must prepare and submit a new responsibility description and responsibility system diagram for each executive after obtaining a resolution from the board of directors, just as they did when they were first submitted.

This burden may be relatively greater for smaller financial institutions in terms of assets or personnel, and concerns are raised that applying the same regulations to them as to larger financial institutions may result in uneven regulatory burdens and excessive costs, which may reduce competitiveness.

In fact, in the case of domestic branches of foreign insurance companies, there are cases where the number of employees is only about 10, and among domestic insurance companies, those that focus on specific channels and products, such as digital non-life insurance companies, are relatively small in size. Furthermore, there has not been a single case of entry into the small-sum short-term specialized insurance company introduced in 2021 to promote various mini-insurances such as pet insurance, and the reason for this is the operational burden due to the same regulations as general insurance companies, and if the regulations of the revised law are also applied, market entry is expected to be even more difficult.

Provided by Insurance Research Institute

Currently, major overseas countries that introduced similar systems ahead of our country are applying differential regulations according to the size and type of financial company. For example, in the UK, regulations are applied differently according to the size of the company’s assets and the type of company. Insurance companies with small assets are not subject to the obligation to prepare and submit liability maps, and the scope of target executives is also limited.

Australia also does not require financial companies with total assets below the standard to prepare and submit an accountability guidance and accountability statement, or to notify companies of significant changes to the information provided. Singapore allows for flexible application by stipulating that although financial companies with less than 50 employees are subject to guidelines for enhancing the accountability of senior managers, they are not required to follow detailed guidelines (such as documentation of executive responsibilities and management structure).

Research fellow Yang emphasized, “(Unlike overseas cases) our country’s current revised law applies all financial companies under the Financial Company Governance Structure Act, and does not apply differential regulations according to the size of the financial company, such as its assets or number of employees.” He added, “This attitude not only lacks validity when compared to cases in major overseas countries, but there is concern that it will have a negative impact on the operation or market entry of small financial companies due to the uneven regulatory burden and excessive costs.”

In response, there are suggestions that there should be discussions on introducing differential regulations based on company size in Korea. In cases where the company is small, has a simple structure, and has relatively clear responsibilities, it is explained that it is desirable to ease some of the regulations in order to secure regulatory proportionality and enhance the competitiveness of the insurance industry.

It appears that a multifaceted review of detailed measures to reduce the burden of regulatory compliance while maintaining the essence of the system, such as establishing standards and accountability structures for small insurance companies to which relaxed regulations will be applied in the future and easing submission obligations, will be necessary.

According to Research Fellow Yang, the following measures are being discussed as ways to establish small insurance companies subject to differential regulation: △a measure based on asset size, like in the UK and Australia; △a measure based on the number of employees, like in Singapore; and △a measure to provide limited relaxation in cases where there is a special need to encourage entry, such as small-scale short-term specialized insurance companies.

Regarding the obligation to prepare and submit a responsibility structure, the following measures can be considered: △ A plan that leaves the preparation and submission of the responsibility description document and responsibility system diagram to the discretion of the government, like Singapore (small) and Australia; △ A plan that exempts only the obligation to prepare and submit a responsibility system diagram, like the UK; △ A plan that imposes an obligation to prepare a responsibility description document and responsibility system diagram, but exempts the obligation to submit it, like Singapore (general).

Research Fellow Yang said, “The newly introduced accountability structure system requires continuous review and discussion during the preparation and implementation process in order to establish itself as an organizational culture that emphasizes autonomous internal control. I hope that there will be active discussions on differentiated regulatory measures suited to the characteristics and scale of the insurance industry in the future.”

yesji@fnnews.com Reporter Kim Ye-ji

Revamping the Insurance Landscape: Is It Time to Overhaul Liability Structures and Regulatory Measures

Share this:

Related