[Becoming an Insurance Insider] '4th Generation Actual Loss Insurance' in One Month... Should You Wait or Switch?

Burden of Rising Claims Ratio and Increased Indemnity Insurance Premiums

[Asia Economy Reporter Oh Hyung-gil] As the launch of the 4th generation indemnity health insurance approaches this July, consumers are facing increasing concerns. Among insurance types, indemnity insurance is considered the most essential to subscribe to first, but experts advise that one should choose it by comprehensively considering their financial situation and medical usage.

According to the insurance industry on the 30th, there are currently three types of indemnity insurance. The first generation refers to the old indemnity insurance sold before October 2009, the second generation is the standardized indemnity insurance sold from October 2009 to April 2017, and the third generation is the new indemnity insurance sold since April 2017.

The first generation insurance has no deductible at all, and almost all hospital treatment costs and medication expenses can be reimbursed by insurance. If the subscriber receives high-cost treatments such as physical therapy or MRI, the insurer must cover the entire treatment cost.

The second generation requires the subscriber to bear only 10% of the treatment cost (deductible rate), with the insurer covering the rest.

Because the insurer’s burden is large, the loss ratio has increased, leading to steep premium hikes every year, which is considered a drawback.

On the other hand, the third generation lowered premiums by separating non-reimbursable treatments. If coverage for non-reimbursable treatments is desired, a separate special contract must be subscribed to. The deductible rates are 10-20% for reimbursable treatments (covered by National Health Insurance) and 20-30% for non-reimbursable treatments. So far, the loss ratio increase has not been significant, resulting in a lower premium burden.

Because of this, switching indemnity insurance policies has rapidly increased in recent years.

The number of first generation indemnity insurance subscriptions, which was 11.06 million in 2016, decreased to 8.54 million last year. The second generation indemnity insurance subscriptions also dropped from 22.21 million in 2016 to 18.77 million last year.

The third generation indemnity insurance, launched in 2017, grew from 1.32 million subscriptions in its launch year to 7.09 million last year, exceeding 20% of the total subscription share. Indemnity insurance for the elderly and those with pre-existing conditions recorded 560,000 subscriptions last year.

4th Generation Indemnity Insurance Premium Surcharge and Discount Application 'Variable'

When first and second generation indemnity subscribers switch to the third generation, the actual insurance payouts by insurers have decreased.

After switching from first and second generation products to the third generation, insurance payouts dropped from 6.2 billion KRW to 4.2 billion KRW, a 32.3% decrease compared to before the switch. For subscribers with accident histories in the first and second generations, payouts after switching to the third generation fell by a significant 54.1% compared to before the switch.

Regarding this, financial authorities analyzed that "the third generation products expanded the deductible rate, which suppressed moral hazard among insured individuals and had a positive effect of reducing factors that increase premiums."

The newly added 4th generation indemnity insurance increases deductibles to 20% for reimbursable treatments and 30% for non-reimbursable treatments. Outpatient deductible amounts rise from 10,000 to 20,000 KRW for outpatient visits and 8,000 KRW for prescriptions to 10,000 KRW (20,000 KRW for advanced/general hospitals) for reimbursable treatments, and 30,000 KRW for non-reimbursable treatments.

What changes most significantly is that, like automobile insurance, premium surcharges will be applied based on usage. If insurance payouts are between 1 million and 1.5 million KRW, premiums will increase by 100%. For payouts between 1.5 million and 3 million KRW, premiums increase by 200%, and for payouts over 3 million KRW, premiums will increase by a staggering 300%.

Conversely, if no insurance payout is made for non-reimbursable treatments, the premium will be reduced by 5% the following year. Since premiums increase the more medical institutions are used, younger people who use hospitals less frequently may find the 4th generation indemnity insurance advantageous.

An insurance industry official said, "Choosing indemnity insurance can be summarized as whether to pay higher premiums and use more non-reimbursable treatments, or pay lower premiums and use fewer non-reimbursable treatments," adding, "One should carefully weigh the pros and cons of each product and subscribe to the insurance that suits them."

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