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The Policies for Reducing the Misselling of Insurance Products for Protecting Consumer

  • Journal of Insurance and Finance
  • 2018, 29(3), pp.103-135
  • DOI : 10.23842/jif.2018.29.3.004
  • Publisher : Korea Insurance Research Institute
  • Research Area : Social Science > Business Management
  • Received : July 30, 2018
  • Accepted : August 20, 2018
  • Published : August 31, 2018

Jung SeChang 1 Chulkyung Ahn 2

1홍익대학교
2보험연구원

Accredited

ABSTRACT

The purpose of this paper is to propose the measures reducing the misselling of insurance products for protecting consumers based on them which have been recently devised in the UK, the US, and Australia. In order to reduce the misselling in Korea, we have implemented various supervisory policies such as disclosing the misselling ratio, adopting the suitability rule, improving the sales process, and changing the commission payment structure. As a result, the misselling ratio is steadily declining, but consumer still feels the damage caused by the misselling. On the consumer side, mandatory financial and insurance education in the UK and the US mitigate information asymmetry and helps to reduce incomplete sales in the long run. In terms of product sales, the UK's Retail Distribution Review (RDR) reform and Australia's financial services reform were effective in reducing the misselling through structural reforms in the insurance market, including a reorganization of the pay system and upgrading channel expertise. The proposals are as follows: First of all, the financial literacy education should be mandatory at school, which is carried out by the National Assembly and the financial authorities as the UK. Second, as product and channel reform, it is necessary to simplify insurance products, differentiate channels by products, and enforce maintenance service system for policies not maintained by financial planner, so-called orphaned policies. Third, in terms of supervisory side, it is necessary to reform channel maintenance education, clarify the legal basis for improving the commission system and the sanctions against twisting or churning, and strengthen the internal control of GA.

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