[Exclusive] 67% of Insurance Fraud Investigators Call for Stronger Penalties and Imprisonment-Focused Sanctions

The Wall Blocking Information Sharing Lets Criminals Slip Away...
Survey of 47 Insurers Reveals the Reality
70% See No Fraud Reduction Despite Special Act Amendment
Establishing a Control Tower Cited as the Most Urgent Reform

The SIU (Special Investigation Unit) members encountered on site expressed significant difficulties in detecting insurance fraud. They identified restrictions due to personal information protection laws, passive cooperation from investigative agencies, and low levels of punishment as the main issues. They said the most frustrating moments are when they witness insurance fraud taking place but, lacking authority, are forced to pay out the insurance money that citizens have accumulated.

Asia Economy conducted a survey (allowing multiple responses) of SIU leaders at 47 domestic insurance companies (20 life insurers and 27 non-life insurers) to hear directly from SIU members who are fighting insurance fraud on the front lines and to examine institutional shortcomings. This survey was designed to reflect the urgent need for policy improvements to eradicate insurance fraud, based on the experiences and judgments of those working at the practical forefront.

When asked, "How is the number of detected insurance fraud cases changing recently?" 18 respondents (40%) said "somewhat increasing," and 13 (28.9%) answered "about the same." Despite the amendment to the Special Act on Prevention of Insurance Fraud that took effect in August last year, about 70% said they did not perceive any effect in reducing fraud.

For the question, "What is the most important condition for reducing insurance fraud?" 39 respondents (67.2%) chose "stronger penalties and sanctions focused on actual imprisonment." 11 (19%) prioritized "expanding information sharing within the industry."

Regarding "the most difficult aspect of detecting insurance fraud," 30 respondents (49.2%) cited "difficulty in securing evidence due to the Personal Information Protection Act." "Delays in cooperation with investigative agencies" followed, with 18 respondents (29.5%).

When asked about "experiences collaborating with external agencies in response to insurance fraud," 20 respondents (43.5%) answered "average," and 15 (32.6%) said "somewhat inefficient." Not a single person said it was "very smooth."

Regarding "the effectiveness of insurance fraud analysis systems using artificial intelligence (AI)," 17 respondents (36.2%) each answered "too early to judge as the system is still in its infancy" and "it only plays a supplementary role." It appears that policy support is needed so that SIUs can actively utilize AI in preventing insurance fraud.

For "the most urgent institutional improvement to strengthen future responses to insurance fraud," 17 respondents (27%) selected "establishment of a control tower at the pan-government level." "Strengthening the obligation of investigative agencies to cooperate" and "increasing the level of punishment for insurance fraud" were also considered important by 16 respondents (25.4%) each.

Cases handled based on performance evaluations... Insurance fraud investigations pushed aside

Many SIU members pointed out the practice within investigative agencies of focusing on cases that are advantageous for performance evaluations. They noted that insurance fraud cases are often left unresolved for years simply because the amount involved is small. An SIU team leader at a major insurer said, "Investigative agencies often sit on cases and only proceed with investigations during special crackdowns or other performance evaluation events. Meanwhile, fraudsters continue to commit insurance fraud, and citizens' insurance premiums keep rising."

There were also investigative agencies that, even when insurance fraud was clear, instructed insurers to pay out the insurance money first. An SIU manager at an insurance company said, "They tell us to pay the claim first because the fraud is only established once the payment is made, or if the amount is small, they let the fraudster receive the money so they can catch them later when the total fraud amount accumulates. While this may be considered an investigative technique, it is essentially turning a blind eye to crime and can lead to additional offenses, which is not desirable."

Some agencies also showed an uncooperative attitude toward requests for collaboration. An SIU senior manager at an insurance company said, "Some investigative agencies even ask us to hire a private company just to extract a single CCTV video. Since we lack investigative authority, we often have to rely on circumstantial evidence, but some agencies respond with an attitude like, 'Are you a detective or something?'"

Grant SIU special judicial police authority and link with a control tower

SIU members unanimously agreed that the core reasons for difficulties in cooperating with investigative agencies are staff shortages and an unreasonable performance evaluation system within those agencies. As a solution, they suggested allowing SIU members to serve as special judicial police officers. This system grants investigative authority in specific matters to individuals with relevant expertise.

An SIU manager at an insurance company said, "Special judicial police officers are already contributing to everyday life by cracking down on businesses that violate food hygiene laws or catching people who illegally dump waste. Local government heads can easily establish special judicial police by law or ordinance, and if a control tower is created in the future, collaborating with it would create significant synergy." Another SIU senior manager added, "Many SIU members are former detectives and are more knowledgeable about insurance fraud investigations than most investigative agencies. Creating a separate certification for these individuals and granting them investigative and data access rights could also be an alternative."

Editor's Note"They deceived, and my insurance premiums went up." The amount of damage caused by insurance fraud has exceeded 1 trillion won for three consecutive years, reaching an all-time high last year. A single fake medical certificate, a few staged accidents, and each exaggerated treatment claim have all added up to the shocking figure of 1.1503 trillion won. The problem is that all these costs are ultimately passed on to honest policyholders in the form of higher premiums. We have analyzed hundreds of court rulings and real-life cases to track how the crime of 'insurance fraud' operates. We have also explored technological responses and effective institutional improvements to identify solutions for eradicating this crime.