Review of Termination of Indemnity Insurance Discount Riders... Will Premiums Increase for the 3rd Generation Too?

3rd Generation Actual Loss Ratio Rises to 112%
Over 8.5 Million People to See More Than 10% Increase if Discounts Disappear

[Asia Economy Reporter Ki Ha-young] The insurance industry has proposed ending the temporary discount applied to the 3rd generation indemnity health insurance, prompting financial authorities to begin reviewing the matter. If the temporary discount ends, premiums for indemnity insurance subscribers since April 2017 are expected to rise by more than 10%.

According to the Financial Services Commission on the 19th, the insurance industry recently requested the financial authorities to terminate the 'stabilization discount special contract' for indemnity insurance premiums.

The stabilization discount was a measure agreed upon at the end of 2019 between financial authorities and the insurance industry to provide a 9.9% discount for one year (2020) on premiums for new contracts of the '3rd generation' indemnity insurance. At that time, the insurance industry agreed with the financial authorities to increase premiums for the '1st generation' old indemnity insurance and the '2nd generation' standardized indemnity insurance by an average of 9.8?9.9%, while applying a 9.9% discount on premiums for the 3rd generation indemnity insurance supplied since April 2017. This measure was initially planned as a one-year temporary application but was extended through this year.

The proportion of 3rd generation indemnity insurance subscribers among individual subscribers is around 25%, and together with the 4th generation launched in July this year, about 8.5 million people are receiving the stabilization discount benefits.

The loss ratio (risk loss ratio) of the 3rd generation indemnity insurance was stable at 101% in 2019 but rose to 112% by the end of September this year. This means that for every 10,000 KRW in premiums collected, 11,200 KRW was paid out in claims. The scale of premium discounts due to the stabilization discount is about 130 billion KRW annually.

If the stabilization discount ends, a double-digit premium increase will be uniformly applied to 3rd generation indemnity subscribers for the first time next year. So far, the 3rd generation indemnity insurance has only seen upward adjustments due to aging, with no uniform premium rate increases.

If the stabilization discount ends entirely and premiums rise for 4th generation subscribers launched in July this year, controversy is expected. The loss ratio for the 4th generation indemnity insurance was very low at 40% as of the end of September.

An insurance industry official said, "The total indemnity insurance deficit this year is expected to exceed 3.5 trillion KRW, and currently, even the 3rd generation indemnity insurance is in a deficit state."

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