[Shocking Insurance Fraud] ⑤ Increasing Large-Scale Fraud Collaborations Among Brokers, Hospitals, and Patients

Corporate Broker Organizations Leading Large-Scale Insurance Fraud
Recruiting Brokers via Multi-Level Marketing to Refer Patients
Insurance Fraud Losses Result in Nationwide Increase in Actual Loss Insurance Premiums

Insurance Fraud Illustration

[Asia Economy Reporter Changhwan Lee] A significant portion of large-scale insurance fraud cases in recent years have involved broker organizations.

Insurance fraud broker organizations disguise themselves as legitimate business entities and recruit patients on a large scale through social networking services (SNS) such as Facebook, Instagram, and YouTube, enticing patients and insurance consumers.

Experts have warned to be cautious as falling for brokers' temptations can lead to involvement in insurance fraud and even criminal penalties.

Growing Influence of Insurance Fraud Brokers

The influence of insurance fraud brokers has been increasing year by year. While broker groups used to be small-scale and fragmented, corporate-style broker organizations have grown in recent years, committing large-scale insurance fraud.

According to financial supervisory authorities and the police on the 9th, Broker Organization A (a hospital promotion company) signed several 'advertising agency contracts' with multiple hospitals in April 2019. However, this was only superficial; in reality, it was a patient referral contract where they received a certain percentage (30%) of sales as a referral fee in exchange for introducing patients to hospitals.

The head of Organization A recruited brokers through insurance planners or broker managers using a 'multi-level marketing' method, had brokers refer patients, and then fraudulently claimed insurance money to share profits. Upon detection, a total of 658 people were caught, including five broker organization members and medical personnel, and 653 patients, with the fraud amounting to 1.6 billion KRW. Both doctors and brokers were arrested.

An insurance industry official said, "The influence of brokers in the insurance fraud market is growing," adding, "While the referral fee used to be 30% of sales, there are reports that it has recently risen to 50%."

Previously, broker organizations approached hospitals first to propose insurance fraud, which hospitals then accepted. Recently, however, hospitals themselves have increasingly hired broker organizations directly. This indicates that insurance broker fraud is widely spread.

Last year, the director of Hospital B in Seoul, caught by the police, employed five inpatient-specialized brokers as administrative staff, paying them a base salary plus performance bonuses based on patient recruitment, thereby encouraging the recruitment of fake patients.

About 700 such fabricated patients were recruited, and the director led false and excessive treatments and hospitalizations for these patients, forging medical records to carry out false admissions and treatments, thereby embezzling indemnity insurance payments. The director was investigated by the police after the illegal activities were uncovered and was arrested along with brokers for violating the Special Act on Insurance Fraud Prevention and the Medical Service Act.

Broker Organizations Also Involved in Cataract Insurance Fraud

Financial supervisory authorities and the insurance industry have identified that multiple broker organizations were involved in cataract insurance fraud, which became a social issue this year due to a surge in indemnity insurance claims.

Hospital C, since 2013, performed cataract surgeries on patients lured and referred by brokers, but manipulated records to show outpatient examinations as inpatient procedures or falsely recorded simultaneous surgeries over two days as separate surgeries, issuing fraudulent medical certificates.

Based on these falsified medical records, the hospital embezzled 37.8 million KRW in National Health Insurance benefits, and patients fraudulently claimed 70.73 million KRW in private insurance payments (from nine patients). After the fraud was uncovered, the doctor who issued false certificates and embezzled insurance benefits was fined 15 million KRW, and the broker was fined 7 million KRW.

As brokers' influence grows, the amount of fraud detected per individual insurance fraudster is also increasing. According to the Financial Supervisory Service, 97,629 people were caught for insurance fraud last year, a 1.2% decrease from the previous year, but the amount detected per person rose by 6.3% to 97 million KRW from 91 million KRW the year before. Despite investigations being limited due to COVID-19 last year, the scale of insurance fraud actually increased, which financial authorities attribute to broker organizations.

Kim Kiyong, head of the Insurance Fraud Investigation Team at the General Insurance Association, explained, "The increase in broker insurance fraud is due to aligned interests among hospitals, patients, and brokers," adding, "Hospitals earn abnormal profits by attracting patients, brokers collect commissions, and patients receive free treatments."

The rise in insurance fraud leads to increased insurance premiums for many citizens, causing significant social harm. Last year, indemnity insurance recorded a deficit of 2.86 trillion KRW, with the deficit widening by 360 billion KRW compared to the previous year. Due to the growing deficit, indemnity insurance premiums have risen by about 14% this year. Previously, premiums increased by an average of 7% in 2019, 7% in 2020, and 12% in 2021. The insurance industry views insurance fraud as a major cause of the expanding indemnity insurance deficit.

A Financial Supervisory Service official stated, "Insurance fraud and excessive non-reimbursable medical treatments are major factors that can worsen insurance finances," adding, "We are continuously strengthening supervision over insurance claims related to excessive medical practices with fraud factors."

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