[Unsustainable Indemnity Insurance] Next Year's Premium Bomb... 9 Trillion Won Losses Over 4 Years

'Loss Insurance' Real-World Insurance
Emergency Due to Accumulated Deficits... Discussion on Rate Increase at the End of This Month

[Asia Economy Reporter Oh Hyung-gil] Medical expense insurance premiums are expected to rise sharply again next year. This is due to the continuous deficit in medical expense insurance losses, which have reached 9 trillion won over the past four years. Unless structural issues such as establishing a non-reimbursable medical treatment management system are resolved, premium increases are inevitable, which will increasingly burden subscribers.

According to the non-life insurance industry on the 25th, the loss amount of medical expense insurance for non-life insurers was tentatively estimated at 1.9696 trillion won up to the third quarter of this year. This is a 10.4% increase compared to the loss amount of 1.7838 trillion won during the same period last year.

Medical expense insurance is a type of insurance that reimburses the portion of medical expenses not covered by health insurance on an actual cost basis. More than 39 million people, accounting for 75% of the entire population, are subscribed, earning it the nickname "the second health insurance."

The problem lies in the moral hazard of some hospitals, clinics, and subscribers, which has led to annual deficits amounting to trillions of won. The deficit of medical expense insurance, which was 1.3594 trillion won in 2018, jumped to 2.4774 trillion won in 2019.

Last year, it recorded 2.4229 trillion won, and this year, as of September, it is approaching 2 trillion won, expected to incur the largest loss ever. Typically, loss amounts increase in the fourth quarter, and considering the current growth trend and fourth-quarter forecasts, the estimated loss amount of medical expense insurance in the non-life insurance industry this year is about 2.9 trillion won.

The loss amount refers to the difference between the 'risk premium'?the insurance premium paid by subscribers excluding business management and operating costs?and the 'incurred loss amount,' which is the insurance payout. This means that the insurance payouts exceed the premiums paid, forcing insurers to bear the burden of covering these deficits.

The loss ratio, calculated by dividing the incurred loss amount by the risk premium, also reached an average of 131.0%. The older medical expense insurance products, which have no deductible and broad coverage, showed higher ratios. The first-generation medical expense insurance sold until September 2009 had a loss ratio of 140.7% as of the end of September this year. Although a premium increase of up to 21.2% was implemented for the first-generation products in April, the loss ratio remained similar to the previous year (141.7%).

The second-generation medical expense insurance (sold from October 2009 to March 2017), which accounts for 46% of all medical expense insurance, also had a loss ratio of 128.6%. The third-generation medical expense insurance (sold from April 2017 to June 2021) saw its loss ratio worsen from exceeding 100% in 2019 to 112.1% as of the end of September this year.

A high loss ratio means that consumers pay lower premiums but receive more coverage, but the costs inevitably shift to those who do not receive coverage. This indicates a deterioration in the sustainability of insurance.

The government, financial authorities, and the insurance industry plan to discuss the extent of medical expense insurance premium increases at the public-private insurance policy council at the end of this month. Once the council decides on the premium adjustment range and communicates it to insurers, the insurers will determine the increase rate accordingly.

An industry official said, "Although premiums were raised this year and the fourth-generation medical expense insurance was introduced, it is insufficient to prevent the worsening loss ratio," adding, "We are in a situation where premiums need to be raised to a higher level than this year."

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