"Loss-Ridden Indemnity Insurance, Urgent Need for Measures Due to Declining Sustainability"

[Asia Economy Reporter Changhwan Lee] Concerns over the sustainability of domestic indemnity health insurance (실손보험) are growing as some sales have been suspended due to a sharp increase in loss ratios, highlighting the urgent need for countermeasures.

According to a report titled "Implications of the U.S. Long-Term Care Insurance Case for Domestic Indemnity Health Insurance" by the Korea Insurance Research Institute on the 10th, the loss ratio of domestic indemnity insurance consistently exceeded 100% from 2016 to 2020, recording 132.3% in the first half of last year.

As deficits continued, three non-life insurance companies (AXA Insurance, ACE Insurance, AIG Insurance) and nine life insurance companies (Fubon Hyundai Life, KDB Life, DGB Life, KB Life, DB Life, Shinhan Life, Mirae Asset Life, Tongyang Life, ABL Life) ceased selling indemnity insurance by March last year, withdrawing from related businesses.

It is expected that if the indemnity insurance deficit persists, more insurers may suspend sales of indemnity insurance in the future.

The report cited the U.S. long-term care insurance as a similar case to domestic indemnity insurance. In the U.S., private insurers began offering long-term care insurance after the 1970s, with new contract numbers peaking in the early 2000s before rapidly declining.

The report analyzed that the main reasons for the deteriorating profitability of U.S. long-term care insurance companies were that interest rates and lapse rates were lower than initially assumed when the products were developed, mortality rates improved, and morbidity rates worsened.

Based on the analysis of the U.S. long-term care insurance case, the report proposed three long-term tasks to overcome the domestic indemnity health insurance crisis.

First, it emphasized the need to simultaneously enhance not only the soundness of insurance companies but also the acceptance of indemnity health insurance by consumers.

In the case of U.S. long-term care insurance, the soundness of insurance companies was the main issue in the early 2000s, but since 2010, both the soundness of insurance companies and consumer acceptance have become major issues.

For domestic indemnity insurance, the initial focus was mainly on consumer acceptance, and recently on the soundness of insurance companies. However, referring to the U.S. long-term care insurance case, it is highly likely that both the soundness of insurance companies and consumer acceptance will become issues in the future.

Therefore, alongside efforts to improve the soundness of insurance companies through premium increases or benefit reductions, it is pointed out that innovative product development and various tax support measures to enhance consumer acceptance should be pursued concurrently from now on.

Second, it argued for the establishment of a system that allows proactive restructuring of the indemnity insurance business if deficits persist.

Considering the liquidation cases of U.S. long-term care insurance, it is necessary to initiate restructuring at an earlier stage for businesses that are difficult to rehabilitate.

It added that research is needed from the perspectives of legal systems, market foundations, and support policies to prepare proactive restructuring measures for domestic indemnity insurance.

Lastly, it stated that research is needed on redefining the roles between the public National Health Insurance and private health insurance in case there are limits to improving the soundness and acceptance of indemnity insurance.

It explained that in the U.S., alongside efforts to improve the soundness and acceptance of private long-term care insurance, discussions are also underway on other financing methods beyond private long-term care insurance, which should be taken into consideration.

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