[Shocking Insurance Fraud②] Concerns Over a Second Valley Murder... Dormant Insurance Fraud Prevention Act

Insurance Fraud Crimes Hit Record Highs Annually
Crime Increases as Economy Worsens, Weak Punishments Also a Cause

The increasing prevalence of insurance fraud in South Korea is attributed to low penalties and limitations in government crackdowns. The insurance industry argues that amending the Special Act on the Prevention of Insurance Fraud to enhance the authorities' enforcement powers and strengthen punishments for fraudsters is necessary to reduce fraud.

According to the National Police Agency on the 28th, the total number of fraud crimes in the country reached a record high of 347,675 cases in 2020. This represents a 28.7% surge in just two years compared to 270,000 cases in 2018. The proportion of fraud within all crimes is also on the rise.

The share of fraud among all crimes jumped from 13.9% in 2017 to 21.9% in 2020. Insurance fraud, as one of the various types of fraud, is also growing in scale every year.

According to the Financial Supervisory Service, the number of people caught for insurance fraud last year reached 97,629, a 23.3% increase over 79,179 in 2018 within three years. The age group involved in insurance fraud is also getting younger. In the last year, 13,881 people in their 20s were involved in insurance fraud, a 33.3% increase compared to two years ago.

The insurance industry primarily cites the prolonged economic downturn as a key factor behind the rise in insurance fraud. They explain that as the economy worsens, the number of people committing fraud increases and the age group involved becomes younger.

A representative from a non-life insurance company said, "Most insurance fraud involves small-scale frauds such as automobile insurance or actual expense insurance," adding, "As the economy deteriorates, ordinary people often fall into the temptation of insurance fraud easily to make ends meet."

Low penalties and enforcement limitations are also identified as major factors. As insurance fraud worsened, the National Assembly enacted the Special Act on the Prevention of Insurance Fraud in 2016, but insurance fraud continued to increase even after the law was implemented. Questions about the law’s effectiveness arose, and more than ten amendment bills including measures to strengthen punishments were proposed but none have passed.

Amendment bills to the Special Act on the Prevention of Insurance Fraud were proposed eight times in the 20th National Assembly but all were discarded, and five bills have been proposed in the current 21st National Assembly but remain pending. Most of these bills focus on enhancing the enforcement authority of the police and financial authorities and strengthening punishments for insurance fraud.

Insurance Fraud Trends (Source: Financial Supervisory Service)

Earlier this year, Representative Yoon Kwan-seok of the Democratic Party of Korea introduced an amendment bill that includes establishing a government joint task force for insurance crime cooperation under the National Police Agency and granting the Financial Services Commission and the Financial Supervisory Service the authority to request necessary data from related agencies for insurance fraud investigations.

The bill also includes provisions for aggravated punishment for crimes committed by insurance workers and obligations for convicted insurance fraud offenders to return insurance payments. It consolidates various previously proposed amendments.

Among these, granting the financial authorities the power to request data from related agencies is considered key. Representative Yoon recently argued that as insurance fraud combining private actual expense non-reimbursement and National Health Insurance Service nursing care benefit false claims is increasing, the Financial Services Commission should be granted authority to request data from related administrative agencies.

Many recent insurance fraud cases involve medical institutions, but the limited information authority of the Financial Services Commission and the Financial Supervisory Service makes enforcement difficult. Due to weak legal grounds, it is hard to properly grasp information on insurance fraud, which reduces the efficiency of investigations.

However, this expansion of investigation targets to medical institutions and the potential for harsher punishments on doctors face strong opposition from the medical community. The medical sector argues that excessive investigative authority could lead to overly harsh punishments for medical professionals.

A financial authority official said, "As insurance fraud increases, the financial burden on public and private insurance grows, which ultimately harms all citizens," adding, "Effective measures to curb insurance fraud, such as amendments to the Special Act on the Prevention of Insurance Fraud, are absolutely necessary."

There are also calls for aggravated punishments and stricter sentencing guidelines for those involved in the insurance industry. The increasing sophistication of insurance fraud methods is partly due to the involvement of professionals like insurance planners. It is said that Lee Eun-hae, suspected of the valley murder case, had a friend who was an insurance planner.

Hwang Hyun-ah, a research fellow at the Korea Insurance Research Institute, pointed out, "Currently, most insurance fraud cases result in imprisonment of less than three years, suspended sentences, or fines. There is a need to explore ways to effectively strengthen punishments by revising sentencing guidelines."