[K-Insurance Trapped by Regulations - Part 1] A 'Backward' System Undermining the World's 7th Largest Market Size

Data Utilization 'Barriers'
Weak Punishment for Insurance Fraud
Opposition to Claim Simplification

[Asia Economy Reporter Oh Hyung-gil] Insurance planner Jeon Hae-seong (55, pseudonym) recently introduced a hospital to his client Park Su-il (48, pseudonym), who was injured after slipping in the bathroom, for treatment. The reason he recommended a hospital located two hours away from Park's home was to obtain a diagnosis of 'intervertebral disc herniation (disc) sequelae disability.' Using the diagnosis from this hospital, Park received a total of 1.1 billion KRW in sequelae disability insurance payouts from nine insurance policies he had with Jeon.

Jeon's insurance clients received approximately 940 million KRW in insurance payouts from 16 insurance companies using this method. During this process, the hospital issued false disability diagnoses as requested by the patients. The fraud case, in which Jeon conspired with legal office brokers and involved the hospital and insurance clients to obtain insurance payouts through false diagnoses, was eventually uncovered by investigative authorities.

The domestic insurance industry is suffering. Despite holding the 7th largest position in the global insurance market, Korea's insurance industry's competitiveness is steadily declining due to various shackles that do not match its status.

Insurance fraud exploiting regulatory loopholes is still rampant. At a time when the industry should be leading the global insurance market by fostering insurtech (a combination of insurance and technology) through digital innovation, it is instead being held back by outdated systems and regulations.

There are calls for urgent reform of laws and systems for Korea’s insurance, which has a history of over 100 years, to be reborn as 'K-Insurance.'

According to the insurance industry on the 22nd, Swiss Re, the world's number one reinsurer, recently analyzed the '2019 Global Insurance Market Status,' reporting that Korea's gross written premiums reached 174.5 billion USD, exceeding 200 trillion KRW. Korea has maintained its position as the 7th largest insurance market for three consecutive years since 2017, following the US, China, Japan, and others.

The sky over Seoul was clear on the 27th, showing a refreshing autumn sky. Photo by Yoon Dong-ju doso7@

Insurance Industry Growth Shrinks Due to Outdated Regulations and Systems

Despite its global standing, the future of Korea’s insurance industry is perceived as bleak by the industry. Although digital innovations such as artificial intelligence (AI) and big data are progressing, the laws and systems that could support their application in the insurance industry are lacking.

In reality, insurance companies cannot even utilize pseudonymized health and medical data. Although the recent amendment to the 'Data 3 Act' established a legal basis for the use of pseudonymized information for scientific purposes, enabling data utilization across all industries, information sharing remains blocked only for the insurance sector.

The industry is forced to use overseas data from countries like Australia and Japan, which have health profiles that differ from those of Korean citizens, to develop products.

Insurance fraud is becoming increasingly sophisticated and organized, emerging as a serious social issue. However, the revision of the Special Act on Insurance Fraud, which has been in effect for five years, is at a standstill. Although there is an urgent need to establish legal grounds for enhanced penalties when insurance industry workers are involved in fraud and to require insurance companies to operate dedicated fraud detection teams to strengthen investigations, the National Assembly is ignoring these demands.

The simplification of the claims process for indemnity health insurance, which policyholders complain about, has also been stalled for over ten years due to opposition from the medical community. Unlike automobile insurance, indemnity health insurance claims are not computerized, causing inconvenience not only to consumers but also to medical institutions and insurance companies. However, the Ministry of Health and Welfare, cautious of the medical community’s stance, continues to advocate a cautious approach.

Jo Yong-woon, a research fellow at the Korea Insurance Research Institute, said, "Currently, 60% of insurance claims are filed by planners on behalf of clients because the process is cumbersome, which has already led to serious personal information leaks. If claims were simplified through computerized systems, it could actually strengthen personal information protection, so opposition to this is hard to understand."

An industry insider said, "The domestic insurance industry is threatened by its own structural low-growth trend, and growth is further constrained by outdated regulations and systems. A regulatory environment that allows competition befitting its position as the world’s 7th largest insurance market must be supported."