Reducing 1st Generation and Increasing 4th Generation... Confusing Real Loss Insurance Premiums

Insurance Companies Consider Reducing 1st Generation Real Loss Insurance
Typically 5-Year Renewal Cycle Means No Immediate Impact
4th Generation Real Loss Discounts End at Year-End... Effective Increase Next Year

Insurance companies are considering lowering premiums for first-generation indemnity health insurance, but the level that customers will actually feel is expected to be low. This is because first-generation indemnity insurance accounts for about 20% of all indemnity insurance, and premiums for first-generation indemnity insurance typically increase sharply every five years, which could offset the current reduction. The most recently launched fourth-generation insurance is also expected to feel like a premium increase next year as the government-led premium discount benefits end at the end of this year.

According to the industry on the 27th, major non-life insurers recently assessed the amount of insurance claims and loss ratios arising from non-reimbursable items such as cataract surgery to lower first-generation indemnity insurance premiums. Data from each company has already been compiled, and industry-level discussions are underway. Due to government pressure for win-win finance, there is a mood to consider lowering indemnity insurance premiums along with automobile insurance. An industry official explained, "When adjusting long-term product rates like first-generation indemnity insurance, we judge by looking at the trend line of recent loss amounts," adding, "Some companies have determined that there are sufficient factors for a reduction."

First-generation indemnity insurance refers to products sold until September 2009, which have no deductible and cover the full amount of medical expenses as insurance claims. Because of this, even if premiums rose, those who had already enrolled rarely switched to second- to fourth-generation indemnity insurance products released later. As of the end of last year, the market share of indemnity insurance was about 20.5% (8.2 million people).

Insurance companies have been able to consider premium reductions because signs have appeared this year that the excessive treatment of cataracts, which was cited as a major cause of indemnity insurance claim leakage, has subsided. Insurers have strengthened their own reviews, and in June last year, the Supreme Court ruled that cataracts cannot be uniformly considered inpatient treatment, allowing insurance claims to be paid at the outpatient treatment level. Since this ruling, the number of cataract-related surgeries has decreased by about 90% this year. As excessive cataract treatment declined, the loss ratio of first-generation indemnity insurance dropped from 141.9% in 2020 to 124.9% at the end of last year.

The expected reduction rate for first-generation indemnity insurance premiums was reported to be below 10%. However, there is a forecast that the actual reduction effect felt by customers may be small. First-generation indemnity insurance typically has a renewal cycle of five years. Premiums do not increase during the five years, but after five years, the accumulated increases are reflected all at once. Considering that indemnity insurance premiums have risen by about 10% over the past decade, those who have reached the renewal cycle are unlikely to feel a premium reduction.

The fourth-generation indemnity insurance, which the authorities have promoted for conversion, will also see premium increases next year. More precisely, the discount benefits that had been provided will disappear. The financial authorities, to prevent indemnity insurance leakage, encouraged insurers to convert first- to third-generation indemnity insurance subscribers to fourth-generation indemnity insurance. The "carrot" offered for this was a 50% premium discount benefit. Those who subscribed to the fourth generation launched in July 2021 receive a 50% discount on premiums until the end of this year. As this benefit disappears, customers will feel the effect of premium increases next year. Those enrolled in first- and fourth-generation insurance numbered about 11.32 million last year, accounting for about 28% of all indemnity insurance subscribers. An industry official said, "Since premium increases are inevitable for second- and third-generation insurance depending on loss ratios, for consumers to truly feel win-win finance through indemnity insurance, it will require a considerable scale."