Despite Annual Premium Increases, 5 Years of Deficits... Real Loss Insurance Recorded 2.5 Trillion Won Loss Last Year (Comprehensive)

All Generations 1, 2, and 3 of Indemnity Insurance in Deficit... Generation 1 Loss Scale 1.3 Trillion Won
Financial Supervisory Service "Strengthening Fixed Insurance Supervision and Improving Coverage Standards"

[Asia Economy Reporter Oh Hyung-gil] Known as the "second health insurance," indemnity medical insurance recorded a loss of 2.5 trillion KRW last year. Despite significant premium increases every year, it has continued to run deficits for five consecutive years. The combined ratio of indemnity insurance, which takes into account actual operating expenses, reached 123.7% last year. A combined ratio exceeding 100%?calculated by dividing incurred losses and actual operating expenses by premium income?means that insurers are selling insurance at a loss.

In response to the ongoing deficits in indemnity insurance, financial authorities have taken action. They plan to strengthen the management of non-reimbursable expenses in indemnity insurance and recommend suspending sales if necessary. This decision stems from concerns that excessive medical treatment and inflated insurance claims for unnecessary treatments could threaten the sustainability of indemnity insurance itself.

According to the Financial Supervisory Service on the 28th, indemnity insurance providers recorded a loss of 2.5 trillion KRW last year, marking five consecutive years of losses since 2016. As of the end of last year, 32.96 million people were enrolled in indemnity insurance, a private insurance that covers non-reimbursable medical treatments not covered by the National Health Insurance. People subscribe to it to prepare for large expenses incurred from sudden accidents or illnesses requiring hospital treatment or admission.

Life insurance companies recorded a loss of 131.4 billion KRW last year, a decrease of 27.4 billion KRW compared to the previous year. Losses for non-life insurance companies increased by 14.9 billion KRW from the previous year, reaching 2.3694 trillion KRW.

Overwhelming Losses from Non-Reimbursable Treatments... Five Years of Deficits Despite Premium Increases

Most losses occurred in non-reimbursable treatments. Last year, indemnity insurance paid out a total of 11.1 trillion KRW in claims, of which 4 trillion KRW was for reimbursable (insured's share) treatments and 7.1 trillion KRW for non-reimbursable treatments.

The proportion of non-reimbursable claims in indemnity insurance payouts was 63.7%, significantly higher than the 45.0% non-reimbursable proportion among National Health Insurance subscribers.

The top diseases by claim amount were musculoskeletal disorders (herniated discs, back pain, shoulder lesions) and ophthalmologic diseases (cataracts). Major treatment items included manual therapy, extracorporeal shock wave therapy, MRI, proliferative therapy, adjustable intraocular lenses, ultrasound of the head and neck, and ocular measurement tests.

By product type, all general indemnity products (1st, 2nd, and 3rd generation) incurred losses, with the 1st generation product suffering the largest loss of 1.3 trillion KRW. The 1st generation (old indemnity) products sold until September 2009 have no deductible and are prone to insurance claim leakage due to excessive non-reimbursable treatments. Older indemnity products with higher deductibles (1.7 billion KRW) and indemnity for those with pre-existing conditions (99.7 billion KRW) showed operating profits.

The combined ratio for indemnity insurance was 123.7%, down 1.8 percentage points from the previous year but still severe. The combined ratio is the ratio of incurred losses plus actual operating expenses to premium income; exceeding 100% means the insurer incurred losses.

Improvement of Indemnity Insurance Coverage Standards... Targeting the Rapid Increase in Non-Reimbursable Treatments

However, there have been ongoing criticisms that expensive non-reimbursable medical expenses processed through indemnity insurance induce medical shopping and excessive treatment.

The Financial Supervisory Service diagnosed that despite premium increases, the combined ratio exceeded an appropriate level last year, raising concerns about the sustainability of indemnity insurance. They analyzed that this stems from a lack of control mechanisms for excessive medical care inherent in the indemnity insurance product structure and moral hazard among certain groups regarding non-reimbursable treatments.

Among all subscribers, 65% had no claims for one year, and 83% of subscribers received insurance payouts less than the premiums paid (an annual average of 296,000 KRW).

Some insurers sell fixed-amount insurance that covers excessive diagnostic fees, daily hospital allowances, and surgery costs even for minor illnesses. The Financial Supervisory Service warns that such products may induce unnecessary surgeries and treatments, leading to leakage in both National Health Insurance and indemnity insurance.

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