The Dilemma of Differentiated Indemnity Insurance Premiums... Both Subscribers and Industry 'Ignore'

Starting Next Year, Insurance Premiums Will Vary Based on Medical Usage
Perception That Previously Purchased Indemnity Insurance Is Good Remains

Current Status of Risk Loss Ratio for Indemnity Health Insurance (Source: Korea Insurance Research Institute)

[Asia Economy Reporter Oh Hyung-gil] Choi Sang-jik (41, pseudonym), who subscribed to indemnity medical insurance in 2012, recently received a call from his insurance company advising him to switch to the "Good Indemnity" plan. The explanation was that although the product and coverage were not different from what Choi had subscribed to, the premium was cheaper. Choi asked an insurance agent friend whether switching was a good idea, but the answer was a firm "Never switch."

Choi said, "The agent told me that the insurance I subscribed to is renewable every three years, covers up to 100 years of age, and has a deductible as low as 10%, which is better coverage than the current indemnity insurance," adding, "Even so, if I had switched at the insurer's recommendation, I would have been the only one to suffer a loss," expressing his disbelief.

As the loss ratio of indemnity insurance, known as the "second health insurance," has surged, a system to differentiate premiums based on medical usage will be implemented starting next year. Some concerns have been raised that premiums may skyrocket for the elderly and patients with severe illnesses. Additionally, the perception that maintaining the existing indemnity insurance with better coverage is the only way to avoid losses remains strong, casting doubt on the effectiveness of the premium differentiation system.

According to the insurance industry on the 28th, as of the first half of the year, there are 34.66 million individual indemnity insurance contracts. Among these, about 28.06 million contracts are standardized or post-standardized indemnity insurance, accounting for nearly 80%, representing the majority of indemnity insurance contracts.

Indemnity insurance is a product that covers some insured medical expenses not covered by health insurance and all non-insured medical expenses. Depending on the sales period, it is classified into "pre-standardized" products sold until September 2009, "standardized indemnity" sold from October 2009 to March 2017, and "new indemnity (Good Indemnity)" sold after April 2017.

The new indemnity plan has a deductible of 10% for insured services and 20% for non-insured services. Also, MRI, manual therapy, and non-insured injections are covered at 70%, resulting in a high out-of-pocket burden. Notably, coverage conditions may change every 15 years, which can lead to losses upon re-subscription.

Introduction of 4th Generation Insurance with Premiums 10% Cheaper Expected

The financial authorities are pushing for a revision of the 4th generation indemnity insurance, which is up to 10.3% cheaper on average than the Good Indemnity plan. The Korea Insurance Research Institute proposed dividing indemnity insurance into a basic type covering insured medical services and a special type covering non-insured services, with premiums for the special type increasing if non-insured usage is high.

In particular, there is ongoing discussion about raising the deductible rates for insured and non-insured premiums from the current 10% and 20% to 20% and 30%, respectively. However, the insurance industry points out that this has limitations in solving the problems of the pre- and post-standardized indemnity insurance, whose loss ratios have surged. This is because the new product structure cannot be applied to current subscribers. Although insurers encourage subscribers to switch contracts, few consumers respond.

An industry official said, "Although the system has been revised several times, the perception that past indemnity insurance is better has grown each time," adding, "If existing indemnity insurance cannot be changed, the effect of the differentiation system will inevitably diminish, so various measures, such as excluding non-insured items to prevent medical overuse, must be discussed."

Meanwhile, the Financial Services Commission announced, "We will finalize and announce the restructuring plan for indemnity insurance products in November." The commission expects that while the 4th generation indemnity insurance may increase premiums for some subscribers, it will provide premium discounts to the majority.

A Financial Services Commission official explained, "While only a portion of subscribers will be subject to surcharge grades due to non-insured usage, most are accident-free (discount grade), so the majority of subscribers will benefit from premium discounts."

This content was produced with the assistance of AI translation services.