The Neglected 4th Generation Indemnity Insurance... Only 140,000 Subscriptions Since July Launch (Comprehensive)

Existing Indemnity Insurance Conditions Favorable, Consumers Avoid Switching
Insurers Face Growing Deficits... "Urgent Need to Strengthen Non-Covered Service Management"

[Asia Economy Reporter Oh Hyung-gil] The '4th generation' indemnity medical insurance, led by financial authorities, is turning into a burden. Since its launch in July, only 140,000 people have newly subscribed or switched to it. This accounts for just 0.004% of the 35 million existing indemnity insurance subscribers.

The 4th generation indemnity insurance, created to resolve the structural problem of losses incurred the more it is sold, is ironically being ignored by the public. Experts point out that non-reimbursed services at medical institutions that encourage excessive treatment need to be managed.

According to the insurance industry on the 28th, the number of 4th generation indemnity insurance subscriptions from five major non-life insurers?Samsung Fire & Marine Insurance, Hyundai Marine & Fire Insurance, DB Insurance, KB Insurance, and Meritz Fire & Marine Insurance?has been only 141,791 since its launch in July.

The number of indemnity insurance subscriptions recorded 150,000 in January and February, increased to 270,000 in March ahead of product revisions, and then recorded 180,000 and 190,000 in April and May respectively. In June, just before the July revision, 550,000 policies were sold. However, after the 4th generation product was launched in July, subscriptions sharply dropped to 63,710 and remained low at 78,081 in August.

This is interpreted as many people switching to the 3rd generation indemnity insurance before the 4th generation was released. The industry believes that consumers, anticipating premium hikes, switched before the 4th generation launch. For those in their 50s and 60s who had existing indemnity insurance, premiums mostly doubled, and the majority chose the 3rd generation instead of the 4th.

The 4th generation indemnity insurance differs from the 3rd generation, which covered both reimbursed and non-reimbursed treatments together, by separating reimbursed and non-reimbursed coverage into the main contract and special contracts. This structure aims to prevent loss ratios from rising due to increased non-reimbursed treatments. Additionally, the patient’s co-payment rate for reimbursed items increased from 20% in the 3rd generation to 30% in the 4th generation. However, premiums are cheaper.

Premiums are discounted or surcharged based on non-reimbursed usage. If no claims for non-reimbursed items were made in the previous year, premiums are discounted, but premiums are adjusted differentially as follows: 100% increase for 1 million to 1.5 million KRW, 200% increase for 1.5 million to 3 million KRW, and 300% increase for over 3 million KRW.

The insurance industry anticipated that the conversion rate to the 4th generation indemnity insurance would not be high. A non-life insurer official explained, "From the consumer’s perspective, the existing indemnity insurance offers better conditions, so sales did not increase sharply."

Accordingly, concerns are growing that the chronic deficit problem in indemnity insurance will persist until existing subscribers switch to the 4th generation product. In the first half of this year alone, non-life insurers’ indemnity insurance losses reached 1.4128 trillion KRW, a 17.9% increase from 1.1981 trillion KRW in the same period last year. As a result, some insurers have stopped selling indemnity insurance, which has led to consumer harm.

Experts point out the urgent need to establish management measures for non-reimbursed medical expenses, such as cataract surgery and physical therapy, which are rapidly increasing. According to the Korea Insurance Research Institute, indemnity insurance claims for cataract surgery are estimated to reach 1.1528 trillion KRW this year, a 77.9% increase from 648 billion KRW last year.

The share of cataract surgery in total indemnity insurance claims by non-life insurers increased from 1.4% in 2016 to 6.8% in 2020, a 4.8-fold increase over four years. This corresponds to an average annual increase of 70% in indemnity insurance payouts by insurers from 2016 to 2020, which is very high even considering that the number of cataract surgeries increased by 10% annually.

Jung Sung-hee, a research fellow at the Korea Insurance Research Institute, said, "Cataract surgery is a typical example showing that non-reimbursed management is not being properly implemented," adding, "We need to enhance the public’s right to know through investigation and disclosure of non-reimbursed cost information and establish socially agreed guidelines on non-reimbursed prices and usage."

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