Lin Hanyao, reporter at 21 Century Economic News
A sales team of 5 agents at a Wuxi branch life insurance company discovered a more "profitable" business than selling insurance. They pooled funds monthly to advance premiums totaling 20 yuan, fabricated policies, and collected approximately 25 yuan in commissions and bonuses from the company, netting a profit of 50,000 to 60,000 yuan.
In less than a year, this 5-person gang defrauded more than 35 million yuan using 231 fake insurance policies. Their illicit scheme was exposed by data only after the renewal rate dropped below 30%.
Recently, the Supreme People's Procuratorate and Jiangsu Procuratorial Network disclosed multiple criminal cases involving forged insurance policies to fraudulently claim commissions, bringing the black-market arbitrage from inverted first-commission rates in individual insurance to light.
Fake policies used to commission fraud are not isolated incidents; they reflect a systemic failure in the traditional individual insurance model, where incentives are front-loaded and accountability mechanisms are insufficient.
In response to the above situation, the National Financial Regulatory Administration issued the "Notice on Promoting Deepening of the Individual Marketing System Reform in the Life Insurance Industry" last year, urging insurance companies to strengthen constraints and guidance for their sales personnel.
Additionally, the China Insurance Association recently held its fifth meeting of the sixth council and approved the "Measures for Building a Credit File for Insurance Sales Personnel," incorporating policy quality metrics such as long-term policy effectiveness, 13-month policy persistency rates, and long-term policy surrender rates into credit evaluations for insurance sales personnel.
High commission incentives have become tools for arbitrage.
In cases disclosed by the Supreme People's Procuratorate, commission and reward mechanisms were exploited by criminal gangs as profit-making tools.
In 2021, Liu joined the Wuxi branch of a life insurance company and recruited 4 fellow villagers to form a sales team.
Due to the insurer's low brand recognition and higher product prices compared to competitors, Liu's team struggled to conduct business.
However, to quickly capture market share, the company established high incentives for its newly formed business teams. Commissions that were originally scheduled to be distributed gradually after customer renewals were instead paid out in full during the first year in various forms—including sales commissions, new hire allowances, management bonuses, and startup subsidies—calculated based on tiered targets achieved by each team.
After Liu and 5 others began studying the commission rules, they discovered that if the team's monthly premium reaches the 20 yuan tier, the total commissions and bonuses paid out will amount to approximately 25 yuan—surpassing the premium by 50,000 to 60,000 yuan.
Facing a monthly price gap of $50,000 to $60,000, the group recruited new sales agents to place fake orders and mobilized friends and family to purchase insurance fraudulently. They lured relatives under the guise of "one year of free insurance," transferred premiums into their accounts, and let the insurer's system deduct the funds to generate policies.
After the insurance company issues commissions and rewards, team members will collect the funds and distribute the profits.
In less than a year, 5 individuals fabricated 231 insurance policies, faked policy performance totaling over 220 ten thousand yuan, and defrauded commissions, allowances, and subsidies amounting to over 35 ten thousand yuan. More critically, almost no one renewed these policies after the first year; they were massed into suspension or cancellation termination status.
In the second half of 2022, the compliance and risk control department of Jiangsu Branch of a life insurance company discovered that the renewal rate for certain products offered by Wuxi Sub-branch was below 30%, while the industry average for similar products is approximately 90%. Follow-up interviews revealed that some policyholders had no genuine intent to purchase coverage, and premiums were deposited into accounts by sales agents.
In 2023, month 6, the branch office filed a report with the police, who subsequently opened an investigation. Between months 7 and 9 of the same year, Liu, Chen, and 5 others voluntarily surrendered to the authorities and were released on bail. In 2026, month 6, the court sentenced Liu and 5 others to one year and two months in prison, suspended for one year and three months, for embezzlement, and imposed fines of 10 yuan each.
In response to significant issues exposed by the case, including flaws in the commission mechanism and irregularities in personnel team management, the procuratorial organ issued a prosecutorial suggestion to the involved insurance company. This directive urged the enterprise to optimize its commission incentive design, strengthen internal management systems, and prevent recurrence of similar cases.
Similar commission arbitrage is not an isolated case.
A case in Nanjing revealed by the Jiangsu Procuratorate's website involved Liu Ya, who lacked sales qualifications. Annually, Liu paid 5 million yuan in management fees to affiliate with "Jiehe" Insurance Agency, specifically targeting high-value long-term life insurance policies with first-year commission rates ranging from 120% to 140%. Liu used these substantial first-year commissions to organize fraudulent insurance purchases.
In this case, Liu Ya recruited an insurance sales team and organized agents to purchase self-insurance or mutual insurance policies, or to make false claims in the names of relatives and friends by paying the first-year premiums. Subsequently, he engaged in malicious policy surrenders and non-renewals to defraud 276 insurance commissions. He further used policy-secured loans and malicious surrenders to defraud Jiangsu Branch of Jun Kang Life Insurance Co., Ltd. of a total of 2 insurance commissions, policy-secured loans, surrender values, and premium price differences, amounting to over 29 yuan.
Ultimately, the Gulou District People's Court of Nanjing sentenced defendant Liu Ya to five years and nine months in prison for contract fraud, imposed a fine of 190,000 yuan, and issued a prohibition on engaging in related professions.
Multiple insurers launch commission clawback
While judicial authorities crack down on malicious commission fraud, insurance companies are increasingly pursuing reverse claims for commissions and allowances against non-compliant agents through civil litigation.
Earlier, Century Economic News analyzed the Q2 solvency reports of multiple life insurance companies and found that Everbright Sun Life faced two agency contract dispute lawsuits with a combined claim amount exceeding 540 million yuan. The court ordered the two agents to return commissions and related payments totaling over 232 million yuan plus applicable interest; both cases are now in court enforcement proceedings. Guofu Life Insurance and Dongfang Jiafu Life Insurance also have recovery claims reaching 103 million yuan and over 25 million yuan per case, respectively.
A life insurance agent at a state-owned insurer admitted to 21st Century Business Herald that the push for commission collection is closely tied to management loopholes from the individual sales force's extensive expansion phase in the past.
The agent stated that some insurers front-loaded first-year commissions during rapid expansion but neglected sales controls; litigation now serves as a risk correction following the identification of operational losses.
Zhu Junsen, a postdoctoral researcher in applied economics at Peking University and a professor, stated that insurers' recovery of commissions signals the insurance sales system has entered an era of "equal rights and responsibilities." Previously, disputes centered on agents claiming commissions from companies; now, as companies seek to recover commissions from agents, it reflects regulators and the industry redefining the legal nature and liability boundaries of commissions. He noted that commissions are no longer viewed as one-time, permanent income but as conditional income tied to sales compliance, business authenticity, and policy quality.
At the regulatory level, authorities are cutting off the "high initial commission arbitrage" chain at its source by establishing deferred commission and clawback mechanisms.
In 2025 year, 4 month, the National Financial Regulatory Administration issued the "Notice on Promoting Deepening of the Personal Marketing System Reform in the Life Insurance Industry," requiring insurance companies to establish a commission clawback mechanism for economic losses caused by violations or illegal acts by insurance sales personnel. This aims to effectively prevent operational risks and to design commission incentives with deferred payment mechanisms that align with product design, fee structures, business quality, and service standards.
For policies with a premium payment term of 5 to 10 years (inclusive), commissions must be paid over at least 3 years. For policies with a premium payment term of 10 years or more, commissions must be paid over at least 5 years.
Insurance sales personnel credit records established for 2027 years.
Regulatory constraints extend beyond adjustments to commission payout rules. The industry is now solidifying policy quality metrics for insurance sales agents into traceable, queryable personal professional credit records, elevating sales accountability from contractual obligations to industry-wide credit governance spanning an agent's entire career.
The China Insurance Association's sixth council, at its fifth meeting, reviewed and approved the issuance of the "Measures for the Construction of Credit Files for Insurance Sales Personnel" (hereinafter referred to as the "Measures"). These Measures will take effect on 2027/1/1.
Employees, individual insurance agents, and other personnel under sales management who establish labor or agency relationships with insurance institutions, complete practice registration, and sell insurance products, as well as practitioners in insurance agency and brokerage firms, shall all have credit records established in accordance with the "Measures."
The above insurance salesperson credit profile includes four categories of information: basic information, employment status, credit evaluation, and public credit.
Specifically, employment status details include inter-institutional mobility records and compliance with resignation procedures. Credit evaluation information encompasses institutional and industry assessments. In addition to documenting performance appraisals, work achievements, rewards and penalties, and acts of dishonesty, it explicitly quantifies quality metrics—such as long-term policy service quality, long-term policy persistency rates, 13-month policy continuation rates, long-term policy surrender rates, and complaint rates—for archival purposes.
In Junsheng Zhu's view, the agent's role is shifting from "salesperson" to "professional service provider."
He explained that agent income has historically been driven primarily by sales volume, with incentive mechanisms focused on rapid customer acquisition and deal closure. Moving forward, compensation will increasingly be tied to persistency rates, suitability management, customer service quality, and regulatory compliance. This means agents must not only fulfill their sales responsibilities but also uphold corresponding professional obligations.
Additionally, Zhu Junsheng noted that the industry has long struggled with issues such as prioritizing sales over service and focusing on the first year at the expense of renewals. These problems are closely tied to the design of commission structures. Regulatory documents have introduced clawback mechanisms, while self-regulatory standards have further refined implementation criteria. The goal is not merely to strengthen penalties but to establish a long-term mechanism where income aligns with responsibility. From regulatory requirements to judicial practice, and from contract terms to internal policy implementation, these measures collectively aim to ensure that sales accountability is truly enforceable and actionable.
