Bancassurance Plan Opposed by Lawmakers, Insurance Firms
- Legislators point out problems with banks handling insurance sales

The controversy over the second-stage bancassurance plan is raging between the financial institutions and the insurance companies. The insurance companies are dead set against the financial institutions handling the insurance product, while the financial institutions welcome it.

A number of legislators called for remedial measures for the government policies surrounding the handling of the sale of bancassurance by non-insurance companies, mainly, banks during the National Assembly inspection of the administration.

Rep. Lee Kye-an of the ruling Uri Party released a report on the issue on Oct. 12, including problems from the first-stage plan for the insurance product. Rep. Kim Yang-soo of the major opposition Grand National Party also released a report saying that the financial watchdog has not done its job of handling the current problems surrounding bancassurance, which sold be ironed out with strong measures. He said banks handling of the insurance product hurt the insurance firms by taking the business away from them. He also said many financial planners lost their jobs with banks selling the insurance product and the government should have a plan to help those insurance sales agents. Rep. Lim Tae-hee of the major opposition Grand National Party, in a report, pointed out that the sale of insurance products by banks created many problems, the biggest one being that banks took away the business from insurance companies too fast, taking over 64.9 percent of market share. The financial authorities projected that banks would cut up from 15 to 20 percent of the insurance market share by 2012. Rep. Kim Ae-shil of the major opposition Grand National Party, in a report, called for delay of the second-stage bancassurance plan, saying that there are too many problems for banks to handle the sale of insurance policies. She said too many insurance salesmen would lose job with banks selling insurance products. Rep. Lee Sang-min of the ruling Uri Party cautioned that the authorities should pay attention to problems associated with the insurance policies lest they should develop into a social issue. Rep. Mun Sok-ho, in a report, also mentioned that the plan to let banks sell insurance policies should be supplemented in such a way as to minimize bad side effects. Rep. Woo Je-chang of the ruling Uri Party called for the postponement of the second-stage plan for bancassurance as it will damage the insurance industry, noting that the sales of insurance firms affiliated with banks increased 2.3 percent, while those by mid-level insurance firms fell 20 percent. In Australia, the number of insurance salesmen fell by 68 percent in 4 years since the start of bancassurance.

The Bancassurance Seminar presided over by Rep. Song Young-gil of the Finance-Economy Committee of the National Assembly resolved nothing in particular, except to confirm different positions held by the two opposing sides.

The Korea Life Insurance Association argued for an indefinite postponement of the the second stage expansion of bancassurance, while the banking community wanted to go ahead with the sale of bancassurance at banks.  Lawmakers present at the event included Reps.Shin Hak-yong, Lee Sang-kyung, Kwon Young-gil and Park Young-sun, who presided over the meeting in place of Rep. Song.

A Samsung Life's director said it is unfair for banks to handle bancassurance because of their superior position in comparison with insurance firms. If guarantee-nature insurance business is opened to banks, small insurance firms would not be able to compete with banks. For customers, too, it would not be beneficial because insurance premiums would not be reduced, but stays the same, benefiting only banks. If the insurance market is opened to banks, it would be detrimental to the insurance industry.

During a debate period following the presentation by Professor Shin Su-shik of Korea University, those who participated in the event could not do any thing solid, expect to confirm each other's different positions.

Director Kang Bong-hee of the Korea Banker's Association said the guarantee-natured insurance product would tend to cut insurance expenses as it requires a large business fund. He said the product should be handled by banks as they have been intended to be under laws by minimizing mistakes.

Director Park Han-chol of the Korean Life Insurance Association claimed that damage to the life insurance companies would be too much, saying that the second stage plan to expand the sale of the product should be delayed until such time that supplementary measures are ready  to reduce the level of damage. He proposed that only guarantee nature insurance product should be handled by agents and life insurance planners, while banks should handle savings-nature insurance products. Director Kim Song-min of the Korea Non-Life Insurance Association auto insurance premium rate hit the bottom since its liberalization due to stiff competition such as online sales. "Things are difficult all around, with no possibility for finding a new market," he said.

Chairman Kim So-sub of the Korea Insurance Agents Association recalled that no life insurance planners have been consulted when bancassurance was first introduced, although it is a matter of life and death for 300,000 insurance salesmen. He called for a new system for handling bancassurance products, taking into consideration many voices of the insurance planners .

Manager Shin Jong-won of the YMCA said the first bancassurance has been a disappointment for consumers and appeared to be like a battle between banks and insurance firms over a piece of pie. He said they ought to have a bancassurance handling system for the benefit of consumers.

Managing Editor of the Korea Economic Daily said the second financial sector is being mistreated in terms of supervision and policies. He said there should be a period to reassess various problems before going on to start the second stage of the bancassurance business.

Professor Kim Jong-dong of Yonsei University, the bancassurance failed to live up to its expectations to lower insurance premium and bring benefits to consumers. It rather increased financial risks for medium-sized insurance firms. He said it should be delayed for from 3 to 5 years to begin the second stage. He also said supervision over sales activities for bancassurance products should be strengthened to bring order to the market.

The Korea Life Insurance Association is opposed to the second stage expansion of the bancassurance market in April next year. It said they are not prepared to further liberalize the business as there is no base for a win-win formula between banks and life insurance firms. There would be strong demands for excess fees and unfair partnership. The association also fears there would be pressure sales, steep discounts and other imperfect sales, lowering public trust in the life insurance industry.

Banks dominance of the market would cause confusion and make rapid penetration into the bancassurance business. Banks dominance would also result in the loss of jobs for insurance salesmen as they would hard for their shares of the market. They would go as far as setting up life insurance affiliates to dominate the market.

The existing life insurance firms would also be in trouble due to sluggish business and stiff competition if bancassurance is expanded.   nw