"The More They Sell, the More They Lose"... Why Insurance Companies Are Desperate to Raise Real-Expense Insurance Premiums

[Asia Economy Reporter Changhwan Lee] Insurance companies are considering double-digit increases in actual expense insurance premiums next year. Although the government has requested insurance companies to refrain from excessive premium hikes, insurers argue that increases are inevitable to continue the actual expense insurance business, which is sinking into deficits.

According to the insurance industry on the 1st, insurance companies are currently internally reviewing premium increases for actual expense insurance next year and plan to finalize the rate hike by mid-this month at the earliest. Most insurers are understood to be considering increases of over 10%.

The reason insurers want to significantly raise actual expense insurance premiums is that the deficit in actual expense insurance is increasing year by year. According to the Financial Supervisory Service, the deficit scale of actual expense insurance among domestic insurers surged from 1.1965 trillion won in 2018 to 2.8602 trillion won last year.

Last year, the loss ratio of actual expense insurance reached 132.5%. This means that for every 1 million won worth sold, there is a loss of 325,000 won. The more they sell, the greater the loss for insurers. The loss ratio, which was 123.2% in 2017, exceeded 130% in 2019 and has not fallen back below 120% since then.

An official from an insurance company said, "Even if actual expense insurance premiums are raised by 20% next year, it is impossible to escape the deficit structure," adding, "Insurers are operating the products reluctantly despite losses."

According to data analyzed by the Korea Insurance Research Institute at the end of last year, even if actual expense insurance premiums are increased by 13.4% annually, the cumulative deficit over the next 10 years is estimated to reach 100 trillion won. The institute analyzed that to achieve a break-even loss ratio of 100% by 2031, premiums must be increased by 19.3% annually during this period.

There are also criticisms that simply raising premiums cannot solve the deficit structure of actual expense insurance. This is because the deficit is growing due to moral hazard by some, such as excessive medical treatment and medical shopping.

The number one non-reimbursable medical expense causing leakage of actual expense insurance payments is manual therapy, with insurance payouts reaching 1.1319 trillion won last year. Compared to 638.9 billion won in 2018, it is evident that manual therapy is being overused as excessive treatment. Insurers have launched focused crackdowns through lawsuits and complaints after insurance payouts related to cataract surgeries at some ophthalmology clinics surged by more than 100 times due to excessive treatment.

The insurance industry hopes that the National Assembly and government will strengthen related laws such as the Special Act on Insurance Fraud Prevention and implement more rigorous crackdowns. If the actual expense insurance deficit continues, not only will it be difficult for insurers to sustain their business, but the majority of good-faith policyholders will suffer from premium increases.

However, the government has recently urged insurers to refrain from excessive actual expense insurance premium hikes, considering the current economic situation and inflation. It is reported that the government is requesting single-digit increases.