[Column] 'Next Year's Real Loss Insurance Premium Renewal Bomb'... The Shadow of Government Intervention

[Asia Economy Reporter Oh Hyung-gil] The shadow of 'government control (Gwanchi)' has deeply fallen over the premium increase rate of indemnity health insurance for next year. The tug-of-war between the insurance industry, which wants to raise premiums to cover deficits amounting to trillions of won, and the financial authorities, who aim to reduce consumer burdens by restraining increases, has been repeating for years.

Insurance companies demand premium hikes due to the sharp rise in the loss ratio of indemnity insurance. As of the end of September, the loss ratio of indemnity insurance exceeded 130%. In particular, the loss ratio of the '1st generation' indemnity insurance sold until September 2009 is approaching 140%. This means that insurance companies pay out 140 won in claims for every 100 won in premiums collected from policyholders.

Considering this trend, indemnity insurance is expected to record deficits for six consecutive years since 2016. Currently, the upper limit for annual premium increases is set at 25%, and the insurance industry has proposed an increase rate in the 20% range.

The ball has now moved to the authorities. However, the atmosphere suggests that raising premiums will not be easy. Due to the unprecedented boom insurance companies experienced from the COVID-19 windfall and the introduction of the 4th generation indemnity insurance in July, the authorities are requesting restraint on large premium hikes.

Financial Services Commission Chairman Ko Seung-beom has been widely regarded as showing a market-friendly approach since his inauguration. However, it is generally expected that indemnity insurance will be an exception to his conciliatory gestures. In 2019, the financial authorities rejected the insurance industry's double-digit increase proposals and limited the average increase to 9%. Last year, the increase was finalized at 10-12%. With the presidential election coming up next year, the expectation that premium hikes will be difficult is gaining weight.

There are also opinions that premium increases must precede to solve the structural problems of indemnity insurance. Although the 4th generation indemnity insurance has been introduced, subscription performance is poor. If existing indemnity insurance premiums rise, consumers who feel the economic burden can be induced to switch to the 4th generation. The authorities also need to actively promote 4th generation subscriptions.

The contradiction of needing to raise premiums but being unable to do so was ultimately caused by the government itself. At the end of 2015, the government implemented insurance price liberalization, entrusting premium decisions to the private sector. When premiums rose, the government hastily prepared premium reduction measures in 2017, continuing a 'liberalization that is not liberalization.' While premiums remain influenced by the authorities, only consumers bear the full brunt of the damage.

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