[Reporter’s Notebook] 'Losses Increase with Sales' Real-Expense Insurance... The Failure of 'Gwanji' Governance

[Asia Economy Reporter Oh Hyung-gil] The 4th generation indemnity health insurance, which offers premium discounts and surcharges, will be introduced next year. Insurance companies selling indemnity insurance, which has been operating at a loss, are generally welcoming this move. However, there are considerable complaints that it is a stopgap measure lacking fundamental solutions to structural problems. This is largely due to the widespread perception that the reason indemnity insurance has deteriorated is the failure of 'gwanchi (government control)'.

In fact, insurance companies have missed several opportunities to raise indemnity insurance premiums over the years due to pressure from financial authorities. The situation is the same this year. Since October, the industry has been requesting an increase in next year's indemnity insurance rates, but the financial authorities have remained silent. Earlier this year, the industry requested about a 20% increase, but due to the authorities' implicit price regulation to keep the increase in single digits, the actual increase was limited to 9.8-9.9%.

The problem lies in the severe loss ratio of indemnity insurance and the uncontrollable scale of deficits. Before the 2009 standardization, the risk loss ratio of indemnity insurance was 143%, and after standardization, it is approaching 130%. Since 2017, the deficit has reached 7 trillion won over four years. The industry argues that to improve the loss ratio, premiums need to be raised by more than 30%.

Especially after the Moon Jae-in administration's policy of 'making non-covered services covered,' the loss ratio has risen more sharply, but from the authorities' perspective, allowing premium increases is not easy.

After much deliberation, the 4th generation indemnity insurance was introduced. The key issue is how many policyholders will switch. The conversion rate to the 3rd generation indemnity insurance was below expectations. Although the new indemnity insurance was launched in 2017, as of the end of the first half of this year, only 18% of contracts have switched. This means 8 out of 10 indemnity insurance subscribers have maintained their existing policies. This is why expectations for the 4th generation indemnity insurance are low.

If there is no hospital use, a discount is given, but the discount rate (5%) is not high. For a monthly premium of 10,000 won, the discount is only 500 won. It is also difficult to expect excessive medical users, whose premiums are surcharged, to voluntarily switch. Inducing switching through an appropriate level of premium increase is necessary.

The more fundamental problem with indemnity insurance can be found in the failure of health authorities to manage non-covered medical services by the medical community. There are about 19,000 non-covered items that are not designated as health insurance benefits. All of these are outside the authorities' control under the pretext of being new drugs or new technologies.

Since non-covered prices and the number of treatments vary greatly depending on the hospital, there is a high possibility of moral hazard. This is why the insurance industry, financial authorities, and health authorities all need to take action to normalize indemnity insurance, which 35 million people have subscribed to.

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