Inadequate Internal Controls in Benefit Increase Process
Hanwha Insurance, Samsung Fire & Marine Insurance Revert Benefit Amounts
Recently, as some non-life insurance companies raised the coverage amount for flu insurance up to 1 million won, leading to overheated competition, the Financial Supervisory Service (FSS) stepped in to curb it.
On the 2nd, the FSS called in executives and employees from 14 non-life insurers for a meeting at the Korea Insurance Development Institute in Yeongdeungpo-gu, Seoul, urging them to refrain from competing by increasing coverage limits. This came just one day after summoning executives from some insurers to request restraint on special contracts that trigger overheated competition, marking a second warning within a day.
The FSS pointed out that insurers engaged in overheated competition by offering excessive insurance payouts for the flu. In fact, Hanwha General Insurance sold a special contract that pays up to 1 million won if the insured contracts the flu and receives treatment. Some agents even conducted “clearance marketing,” claiming that flu insurance subscriptions might soon be discontinued. Word of mouth led to thousands of sign-ups per day. Consequently, other non-life insurers also raised their coverage amounts one after another, intensifying the competition.
Flu insurance is a product subscribed to as a special contract within comprehensive or health insurance policies, which pays a fixed amount regardless of actual treatment costs when an antiviral prescription is given after a confirmed flu diagnosis. Because of this, financial authorities are concerned that unnecessary treatments aimed at claiming insurance payouts will increase, causing moral hazard and ultimately increasing the burden on honest consumers. An FSS official criticized, "Many non-life insurers are increasing coverage amounts far beyond actual costs or covering 'non-emergency' cases instead of just 'emergency' ones, leading to fierce sales competition. This can result in moral hazard due to excess profits for users and transfer consumer burdens through rising indemnity medical insurance premiums and National Health Insurance premiums."
In response to the FSS’s request for restraint, Hanwha General Insurance lowered its coverage amount from 1 million won to 200,000 won. Samsung Fire & Marine Insurance, which temporarily raised coverage to 500,000 won, also reverted it back to 200,000 won starting this month.
The FSS pointed out that some insurers lack proper internal controls during product development and coverage amount increases. Kim Beom-su, Director of the Product Review and Sales Department at the FSS, stated, "While such product development and sales methods by non-life insurers may increase profits in the short term, they inevitably lead to consumer harm due to increased post-costs in the long term. We hope insurers themselves will take stronger responsibility and refrain from product development practices focused solely on immediate profits." He added, "Going forward, we plan to focus on inspecting insurers’ internal control operations to prevent consumer harm related to excessive coverage limit increases in the non-life insurance industry."
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