[Pet Insurance War] (Part 2) Pet Insurance with Weak Institutional Foundation... Increased Risk of Abuse and Over-treatment

Standardization of Medical Information and Expansion of Sales Channels Also Challenges
"Comparison and Recommendation Platform Launching in May"

The pet insurance market in South Korea is rapidly growing, but the institutional foundation is still weak. Medical information for companion animals has not been standardized, and sales channels are insufficient. There is also a possibility of abuse of pet insurance, excessive treatment, and insurance fraud. Concerns have been raised that if only quantitative expansion is pursued, pet insurance could deteriorate into a "glittering apple" due to moral hazard and worsening loss ratios.

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Is There a Way to Prevent Abuse of Pet Insurance?

Imagine a pet dog giving birth to five puppies that are difficult to distinguish by appearance. According to the Animal Protection Act, all companion dogs must be registered, but the owner registers only one. Then, after subscribing to a single pet insurance policy, the owner changes the external microchip to claim medical expenses for all five puppies. This is currently one of the most concerning abuse cases in the pet insurance industry.

The companion dog registration system was introduced in 2014, but the registration rate still remains in the 70% range. The number of companion cats is increasing significantly, and although they are covered by pet insurance, they are not yet subject to mandatory registration. When registering companion dogs, there is still reluctance to implant 'internal' recognition chips due to concerns about animal rights protection and side effects, leaving ample room for pet insurance abuse. If insurance companies fail to manage pet insurance loss ratios, they could follow the path of indemnity insurance, which incurs trillions of won in deficits annually.

Some non-life insurers, such as DB Insurance, are collaborating with AI technology companies that perform biometric authentication through features like the nose prints of companion animals to prevent moral hazard through technology. However, due to current technical limitations, many insurers do not use these technologies yet, so it is expected to take time for activation.

Standardization of Medical Information and Issuance of Medical Records Are Needed

The lack of standardization in medical information such as disease names, treatment names, and treatment codes for companion animals is also a problem. All treatment items at animal hospitals are currently non-reimbursable, resulting in large variations in treatment costs between hospitals. According to the Ministry of Agriculture, Food and Rural Affairs' animal hospital treatment cost disclosure system, the initial consultation fee for companion dogs in Seoul ranges from 3,300 won to 75,000 won, a 23-fold difference.

Under current law, veterinarians are not obligated to issue animal medical records. This makes it difficult for insurance policyholders to obtain the necessary documents to submit to insurers. The veterinary community refuses to issue medical records, arguing that disclosure would lead to rampant self-treatment and animal abuse. Self-treatment of companion animals is illegal. However, under the Pharmaceutical Affairs Act, pharmacists can sell veterinary drugs requiring a veterinarian's prescription without a prescription. There is concern that owners might purchase and administer drugs directly after viewing medical records. A bill to amend the Veterinarian Act, mandating the issuance of animal medical records, has been proposed but has not yet passed the National Assembly.

These issues exacerbate information asymmetry among animal hospitals, insurance policyholders, and insurers. As a result, insurers find it difficult to secure data to calculate reasonable premiums and compensation limits. Due to a lack of statistics, insurers create similar insurance products with comparable coverage. This increases potential conflicts with policyholders and raises the possibility of excessive treatment or insurance fraud. Kim Kyung-sun, a research fellow at the Korea Insurance Research Institute, advised, "Authorities should introduce electronic claims processing for companion animal insurance to encourage reasonable claims review by insurers and improve consumer convenience," adding, "It is also necessary to analyze health risk factors considering the life cycle of companion animals and establish appropriate health management guidelines."

Expanding Sales Channels Is Also a Key Task

Expanding online sales channels is another challenge to be addressed. Initially, pet insurance was scheduled to be added to insurance comparison and recommendation platforms starting last month, but this has been delayed. This is because non-life insurers have not agreed on whether to classify pet insurance as general or long-term insurance.

General pet insurance has a subscription period of less than one year and relatively low premiums. It covers diseases that can be treated in a short period, such as simple joint disorders or skin diseases. Long-term pet insurance has a subscription period of more than one year, with higher premiums but broader coverage, including inpatient/outpatient and surgery costs.

Samsung Fire & Marine Insurance intends to list pet insurance as general insurance on platforms, apparently aiming to quickly attract subscribers with affordable pet insurance. On the other hand, other non-life insurers like Meritz Fire & Marine Insurance argue that it should be listed as long-term insurance. Financial authorities have requested insurers to reach an agreement, stating that general and long-term insurance are distinctly different products and difficult to compare or recommend on the same level. A representative from Kakao Pay Insurance, which is preparing the platform with major insurers, said, "We plan to launch pet insurance by the end of May at the latest." An industry insider said, "If pet insurance comparison and recommendation become active, the medical cost burden for companion animals will be reduced through cost-effective products," adding, "Competition among insurers will be stimulated, leading to the development of better products and service improvements."

Financial authorities are first working on institutional improvements, such as expanding offline sales channels. Following the revision of the Financial Supervisory Service's insurance supervision rules, from last month, animal hospitals and pet shops registered as simple non-life insurance agencies can sell long-term pet insurance policies with terms exceeding one year. A Financial Services Commission official said, "We will collaborate with the Ministry of Agriculture, Food and Rural Affairs, the veterinary community, and the insurance industry to ensure pet insurance becomes customized insurance that considers the needs of pet owners and the characteristics of companion animals," adding, "We plan to establish measures to prevent excessive treatment and increase new products available at affordable premiums."