The Ministry of Land, Infrastructure and Transport, the Financial Services Commission, and the Financial Supervisory Service announced on the 26th that they have prepared 'Measures to Improve Illegal Claims in Auto Insurance.' Mandatory auto insurance was established to provide maximum medical coverage for accident victims. However, some patients and hospitals have abused the system, leading to illegal claims, insurance fraud, and excessive settlement payments, which have rapidly deteriorated the finances of auto insurance. The Board of Audit and Inspection has also continued to point out these issues. The government, considering that both auto insurance and indemnity health insurance are seriously affected by medical shopping and overtreatment, has been preparing countermeasures in private since last year.

Future treatment costs for Gyeongsang patients exceed
the paid treatment costs,
causing an increase in loss ratio and a vicious cycle of premium hikes

The core of the new reform is to prohibit future medical expense payments for minor injury patients classified as grades 12 to 14. Future medical expenses are a type of settlement paid in advance by insurers, calculated at the time of agreement with the victim to cover anticipated future treatment costs. This has been a customary payment by insurers to prevent Nairong Hwanja, who stay in hospitals for extended periods aiming for large insurance payouts rather than treatment. However, due to a lack of clear standards, future medical expenses have continued to grow, leading to insurance payout leaks, increased loss ratios, and a vicious cycle of rising premiums. As of 2023, future medical expenses paid to minor injury patients amounted to 1.4 trillion KRW, exceeding the 1.3 trillion KRW paid for their actual treatment costs.

Once the reforms are implemented, minor injury patients involved in car accidents will have to receive treatment at hospitals or clinics and then claim insurance payments. With the revision of auto insurance policy terms, from January 2023, treatment for minor injury patients is basically covered for up to four weeks from the date of the accident. If treatment is needed beyond four weeks, a medical certificate must be submitted to the insurer every two weeks. However, some hospitals have issued medical certificates too easily, leading to moral hazard such as overtreatment of minor injury patients. To address this, the government has included a provision in the new measures requiring additional documentation for minor injury patients who need long-term treatment.

Insurance claim must be filed after treatment
Additional documents required for treatment over 8 weeks
Standards for future treatment costs for moderate to severe cases established

If a minor injury patient wishes to receive long-term treatment exceeding eight weeks, they must submit additional documents such as medical records to the insurer so the necessity of treatment can be verified. After reviewing the documents, if the insurer determines that the justification for continued treatment is insufficient, they may notify the patient in writing of their plan to suspend payment guarantees. If the patient disagrees with the insurer's plan or a dispute arises, a neutral and objective mediation body and procedures will be established. The government plans to disclose mediation standards that include both medical and engineering perspectives to ensure transparent reviews.

For moderate to severe injury patients (grades 1 to 11), clear standards for future medical expense payments, which have been paid without basis until now, will be established. This is to prevent excessive claims and to encourage compensation that matches the degree of injury. Research will also be conducted to revise compensation standards for loss of income, etc., to alleviate the economic burden on patients beyond primary treatment costs. Discussions will also be initiated on the legalization of compensation items stipulated in auto insurance policy terms.

The government has also prepared measures to prevent unhealthy practices related to auto insurance and to strengthen penalties. When moderate to severe injury patients receive future medical expense payments, insurers will be required to inform them that they cannot receive duplicate treatment for the same condition under other insurance such as health insurance. Some patients have previously engaged in 'double claiming,' receiving future medical expense payments and then also benefiting from health insurance for the same injury, which has worsened the finances of the national health insurance system. Legally, if a patient receives future medical expense payments and then gets treated for the same injury under health insurance, benefits are restricted, but in practice, there has been no way to verify this. Accordingly, the government also plans to promote support for detecting duplicate claims.

Preventing 'Double Benefits' for Severe Patients
Strengthening Administrative Sanctions for Insurance Fraud
Increased Insurance Premiums for Drug and Substance-Impaired Driving

Regarding insurance fraud, administrative sanctions for repair shop operators who are sentenced to imprisonment or more will be strengthened from the current 'business suspension' to 'business registration cancellation,' in line with similar legislative precedents. To prevent serious traffic law violations and raise public awareness, a 20% insurance premium surcharge standard will be established for drug- or substance-impaired driving, just like for drunk driving and other serious violations. For passengers in vehicles involved in drug- or substance-impaired driving, unlicensed driving, or hit-and-run, compensation will be reduced by 40%, the same as for passengers in drunk driving cases.

Detailed operational aspects of auto insurance, such as premium rate calculation and payment guarantee procedures, will also be updated to better reflect reality. In the future, the accident-free driving record of young drivers (aged 19 to 34) who drove under their parents' insurance will be recognized. This is to reduce the insurance premium burden for young adults who become independent and purchase their first auto insurance after employment or marriage. Spouses will also be able to have up to three years of accident-free driving recognized, regardless of the type of driver limitation special contract. Currently, only those who drove under the 'spouse-only special contract' are recognized for accident-free driving records.

Since quality-certified parts under the Automobile Management Act are now recognized as equivalent to original equipment manufacturer (OEM) parts, the scope of new parts that can be used for vehicle repairs will be expanded to include quality-certified parts in auto insurance policy terms. This is to improve the high-cost repair structure centered on OEM parts.

Measures will also be introduced to enhance the convenience of patients receiving treatment after car accidents and to streamline administrative procedures at medical institutions. The current payment guarantee process, where insurers send payment guarantee certificates by fax after receiving a phone call from medical institutions, will be replaced by an electronic processing system.

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Insurers will be required to submit annual accounting results for mandatory auto insurance to the Ministry of Land, Infrastructure and Transport, and, if necessary, a reporting obligation will be introduced to protect subscribers and insured persons, establishing a systematic management framework for mandatory auto insurance.

The main elements of the reform, such as establishing grounds for future medical expense payments and requiring additional documentation for long-term treatment of minor injury patients, will be completed within the year through amendments to relevant laws and policy terms. Other measures, such as expanding the recognition of accident-free driving records and introducing electronic payment guarantees, will be implemented in the first half of this year. The government expects that these reforms will reduce unnecessary compensation payments and lead to an estimated 3% decrease in individual auto insurance premiums.

Kim Soyoung, Vice Chairman of the Financial Services Commission, said, "We expect that these reforms will resolve the issue of unnecessary auto insurance payout leaks," adding, "We will also strengthen supervision of insurers, together with the Financial Supervisory Service, to ensure that the system improvements directly benefit policyholders and to monitor the fairness of claim denials and premium adjustments."