Foreign insurance firms are given greater autonomy and they should be more responsible with that privilidge, Financial Supervisory Service Gov. Zhin Woong-seob stressed on Oct. 28.
"The method of regulations has been changed recently and has increased the autonomy of insurance firms in developing products and determining insurance premiums," Zhin said during a breakfast meeting with heads of 13 foreign insurance companies operating in Korea.
The meeting was held at the Conrad Seoul hotel on Yeouido, Seoul, on Oct. 28.
"In this circumstance where greater autonomy is allowed, it is very important for insurance companies to recognize the true meaning of autonomy."
Zhin stressed that the government is well aware that foreign financial firms serve a "critically important" role and asked them to continue to help Korea's financial industry develop global competitiveness.
In return, he pledged that the FSS will build a fair and transparent environment.
The watchdog announced its Roadmap for Insurance Business Reform last October. The reforms package prohibited financial authorities from intervening in the decision-making of insurance firms in setting up premiums and commissions.
Also, the package allowed insurers to report after developing new products. Previously, rules required insurers to report before starting product development.
The FSS chief said the reforms package is helping insurance firms stimulate innovation and competition between peers by easing regulations, but at the same time underscored insurers to refrain from raising premiums excessively.
"Recovering previous losses through premium hikes is not a desirable management strategy," Zhin said, adding that insurers should give more efforts to delivering benefits to claimers more quickly and precisely.
The FSS chief also asked them to make efforts to deal with insurance claims swiftly and accurately based on insurance clauses to satisfy customers.
The top FSS official noted that the International Financial Reporting Standards (IFRS) 4 Phase II will be applied to insurers here starting in 2021.
Under the rule, their liabilities will be assessed on the basis of market value, not book value. It's expected to enable a much "fairer" assessment on insurers' ability to withstand stress and also force them to have more capital bases and reserves to cover potential losses.
"The implementation of IFRS 4 Phase II will have a huge impact on the industry as a whole," Zhin emphasized. "In this regard, foreign insurers should cooperate with their headquarters, taking pre-emptive measures, such as capital base expansion, if necessary.
The meeting was attended by the heads of AIA Korea, Chubb Korea, MetLife, Tongyang Life, Prudential Life, Asia Capital Re, AIG Korea, AXA Direct, BNP Paribas Cardif General Insurance, Mitsui Sumitomo Insurance Korea, Munich Re Korea and SCOR Korea.
Governor Zhin said the watchdog will shift its supervision to "ex-post monitoring" from "ex-ante regulations."
The policy shift is designed to give more freedom to the firms by relaxing rules requiring them to make prior reports to the FSS. "We expect financial firms to take their own initiative to continually improve their internal controls and exercise effective risk management," Zhin said. "We will certainly do our part to encourage new, more diversified and innovative products for the market as well."
The FSS announced that its policy direction this year will have a three-pronged approach consisting of providing greater autonomy and responsibility, preventing financial incidents through preemptive measures and enhancing trust toward the financial sector.
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