Abstract
General agencies are gaining market share within insurance sales market, based on their advantage to compare and sell different kinds of insurance products. Size of individual general agency is getting bigger, as medium-to-large sized agencies attract more sales agents and gain market share. As these agencies exert greater influence in the sales market, insurers are trying to enhance their bargaining power by acquiring stakes of general agencies or establish agency themselves as a form of subsidiary. In case when insurers invest in such agencies by acquiring stakes, the insurers must abide by requirements of Insurance Business Act, and the Act on the Structural Improvement of the Financial Industry, and etc. Those include restrictions of insurers acquiring stake of other companies and obtaining an approval from the Financial Services Commission. In addition, when insurers hold a general agency as their subsidiaries, the insurers should comply with the various requirements set forth in the Insurance Business Act and its subordinate regulations. Also, general agencies must follow relevant regulations such as the Insurance Business Act and the Financial Consumer Protection Act as the agencies themselves are insurance solicitors and financial product distribution agents or brokers. Penalties and sanctions can be applied to the agencies in case of violation. Particularly, the Financial Consumer Protection Act imposes strong sanctions on violation of its sales regulation, to prevent financial consumer damages from miss- selling of financial products. The Act has also introduced stronger measures to enhance effectiveness for consumer remedies. Therefore, reviewing those regulations details and violation effects are important when determining size and risk of the insurers’ investment to such agencies. It is necessary to ensure sound management on general agencies and protect insurance consumers by regulating governance of general agencies, such as setting up internal control standards, and etc. Particularly, Regulation on Supervision of Insurance Business prohibits insurers from supporting rental fees and etc. to agencies as a business standard for general agencies. The issue can be problematic as insurers provide money through stake investment. That said, it is appropriate to exempt such action from prohibition, unless stated otherwise, as capital procurement through stake acquisition is an execution of investment and do not share the same legal character of lease or borrowings.
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