[Reporter’s Notebook] The Special Act on Insurance Fraud Prevention Amendment Lacks Substance

The amendment to the Special Act on the Prevention of Insurance Fraud passed the National Assembly on the 25th. This is the first amendment passed in eight years since the related law was enacted in 2016. The amendment includes provisions to punish acts of soliciting, inducing, and advertising insurance fraud. Previously, even if posts recruiting insurance fraud team members appeared on social networking services (SNS), there was no legal basis for punishment, but now prevention is possible in advance. The authority to request data from related agencies and the power to investigate insurance fraud have also been strengthened.

This amendment will provide considerable help in stopping insurance fraudsters. However, it is regrettable that key provisions such as the recovery of fraudulently obtained insurance money and enhanced penalties for industry workers were omitted. Although these provisions were included in the amendment, they were deleted during the review process by the National Assembly’s Legislation and Judiciary Committee on the 24th.

Under the current law, even if an insurance fraudster loses a criminal lawsuit, they are not required to immediately return the fraudulently obtained insurance money. After a guilty verdict, the insurance company must file a civil lawsuit for unjust enrichment and win to recover the money. As of 2022, the amount of detected insurance fraud was 1.0818 trillion won, with 102,679 people caught?the highest ever. It is said that the figures for last year, currently being compiled, have surpassed this. However, the recovery rate of fraudulently obtained money that insurance companies reclaim through civil lawsuits has averaged less than 20% over the past six years for both life and non-life insurance. This is because the litigation process until final judicial action is lengthy, and many fraudsters adopt a defiant attitude.

Despite this situation, lawmakers criticize insurance companies’ low recovery rates during every national audit. It is like blaming someone with a leg disability for not running fast rather than giving them crutches. If insurance fraud increases and the fraudulently obtained funds are not properly recovered, the premiums of honest insurance policyholders will rise. This also negatively affects public insurance finances. Ryu Cheol, head of the insurance fraud investigation department at Samsung Life Insurance, who has been part of the Special Insurance Fraud Investigation Unit (SIU) for 20 years, said, "If insurance fraud funds are recovered in a timely manner, it would help lower premiums, so it is regrettable that the recovery provision was omitted this time."

It is also ironic that the enhanced penalty provision for industry workers was removed. The reason given is that it conflicts with higher laws such as the Criminal Act and that caution is needed when including enhanced penalties for specific occupational groups in legislation. However, there are already laws imposing enhanced penalties on specific occupational groups, such as the Act on the Aggravated Punishment of Specific Economic Crimes and the Kim Young-ran Act. Some say that the removal was due to the fact that the term "industry workers" includes not only insurance workers but also medical institution workers. It is rumored that this was quietly removed to avoid strong opposition from the medical community, including the Korean Medical Association, ahead of the general election. An executive from a major life insurance company lamented, "Recently, most insurance fraud cases involve collusion between hospitals and brokers from insurance companies. Even if a doctor’s license is revoked due to insurance fraud, they can simply get it reissued."

Recently, "win-win finance" has become a hot topic in the financial sector. Must win-win finance for the people necessarily come from the coffers of financial companies? The law should start by refining details to ensure it does not become a net that only lets the big fish escape.