The '1,200% rule,' which limits the payment of first-year recruitment commissions, will be expanded to include insurance planners affiliated with General Agencies (GAs) starting in July.

The Financial Services Commission announced today (June 30) that this reform of the insurance sales commission system will take effect starting the 1st of next month.

The 1,200% rule, which caps the first-year recruitment commission at 12 times the monthly insurance premium, has previously applied only to sales commissions paid by insurance companies to their exclusive planners or GAs. Moving forward, this will also apply to planners affiliated with GAs.

This is expected to eliminate regulatory arbitrage between sales channels and reduce excessive competition over sales commissions.

Financial authorities plan to clarify detailed application standards through a task force (TF) dedicated to the settlement of the sales commission system. The Korea Life Insurance Association, the General Insurance Association of Korea, and the Korea Insurance General Agency Association also plan to support the stable implementation of the system by establishing support centers for commission reform within each organization.

Financial authorities warned, "We plan to intensively monitor attempts to bypass regulations, such as irregular commission payments by insurance companies and GAs, and will immediately take strict measures against malicious violations."

Large GAs with 500 or more planners will be required to provide additional explanations regarding the grade and ranking of sales commissions, as well as the reasons for recommending specific insurance products during the contract process.

Currently, planners are required to explain at least three similar products and obtain a confirmation document. Now, they must also provide information related to sales commissions.

The commission grade is classified into five levels based on the commission level within a similar product group, and the commission ranking is determined by the ranking among recommended products.

The first rank has the lowest commission, and even among products in the same grade, a higher ranking indicates a lower commission.

Consumers can check the list of recommended insurance companies and request that products from an insurance company of their choice be included in the explanation.

Financial authorities plan to implement a commission installment payment system in January of next year to improve the practice of excessive upfront commission payments and to increase insurance contract retention rates.

(Photo: Provided by Financial Services Commission, Yonhap News)