[Exclusive] Annual Insurance Fraud Tops 1 Trillion Won... Recovery Rate Only 9.8% Over Five Years

'Record-High' 1.1503 Trillion Won: A Month-Long Investigation
Insurance Fraud Exceeds 1 Trillion Won for Three Consecutive Years
Becoming More Sophisticated, Organized, and Widespread

Among the many types of fraud, coin scams, voice phishing, and jeonse scams attract significant public attention. This is because the perpetrators and victims are clearly defined, and people frequently share harrowing stories of how they or their families and acquaintances narrowly avoided becoming victims themselves. As a result, policy responses to prevent these types of fraud tend to be relatively swift.

Insurance fraud, however, is different. Even when news reports cover insurance fraud cases worth hundreds of billions of won, many people simply think that criminals have stolen money from insurance companies and believe it has nothing to do with them. In reality, most are unaware that this money actually belongs to themselves and their families. Many also fail to recognize that insurance fraud ultimately leads to higher premiums for everyone.

Asia Economy formed a special investigative team and spent a month reporting on insurance fraud out of a sense of urgency that illegal activities, which proliferate like mold behind these misconceptions, should no longer be neglected. Insurance fraud is a crime that directly threatens people's daily lives, yet it receives less attention than other types of fraud and suffers from inadequate legal and institutional support. Given that insurance plays a vital role in providing security in an era of low birth rates and rapid aging, it is imperative to prevent the increase in insurance payouts lost to fraud.

Insurance Fraud Exceeds 1 Trillion Won for Three Consecutive Years... Driving Up Premiums

According to statistics from the Financial Supervisory Service, the amount of insurance fraud detected was 1.0818 trillion won in 2022, 1.1164 trillion won in 2023, and 1.1503 trillion won in 2024?exceeding 1 trillion won for three consecutive years and setting new records each year. During this period, the number of individuals caught committing insurance fraud was 102,679, 109,522, and 108,997, respectively, surpassing 100,000 each year.

The increase in detected insurance fraud may not feel tangible. Consider this: every driver in South Korea is required to have auto insurance. Last year, the amount of auto insurance fraud detected was 570.4 billion won. In the same year, insurance companies collected 20.6651 trillion won in auto insurance premiums from the public, meaning 2.8% was lost to fraud. If we assume that premiums increased by the amount lost to fraud, and apply this to the average auto insurance premium last year (692,000 won), each person paid about 20,000 won more in premiums.

Looking at the types of insurance fraud detected last year, auto insurance accounted for the largest share at 49.6% (570.4 billion won). Long-term insurance, including indemnity health insurance, was next at 42.2% (485.3 billion won). This was followed by protection-type insurance (4.4%, 50.1 billion won), other types (3.3%, 38.3 billion won), and fire insurance (0.5%, 5.8 billion won).

Even When Detected, Most Fraud Money Is Hidden or Spent... Only 9.8% Recovered Over Five Years

Detecting insurance fraud does not mean the stolen insurance payouts are immediately recovered. Even after insurance companies and the Financial Supervisory Service detect fraud and refer cases to investigative agencies, it can take years for criminal prosecution to be completed. Furthermore, under current law, even if an insurance fraudster is convicted in criminal court, insurance companies cannot immediately recover the stolen funds. They must win a separate civil lawsuit to do so.

According to exclusive data obtained by Asia Economy from the office of Lee Jungmoon, a lawmaker from the Democratic Party of Korea, the total amount of suspected insurance fraud referred to investigative agencies by ten major domestic insurance companies over the past five years (2020?2024) was 1.2031 trillion won. Of this, only 117.54 billion won, or 9.8%, was recovered. During the same period, five life insurance companies recovered 19.51 billion won (13.5%) out of 145 billion won, while five non-life insurance companies recovered 98.03 billion won (9.26%) out of 1.0581 trillion won. When recovery rates are low, insurance companies recognize the unrecovered amounts as losses, which in turn becomes a factor driving up premiums.

The low recovery rate is due to fraudsters spending or hiding the stolen insurance payouts and adopting a defiant attitude. There are also institutional issues. When the Special Act on Insurance Fraud Prevention was amended last year, the provision for the "immediate recovery of stolen insurance payouts" was omitted. This provision would have allowed insurance companies to recover stolen funds immediately from convicted fraudsters. However, the Legislation and Judiciary Committee excluded it, arguing that recovery of stolen funds is a matter of private contracts. Knowing that insurance companies lack the authority to recover stolen funds, fraudsters delay returning the money for as long as possible, even after being convicted. Lee Gichang, head of the SIU (Special Investigation Unit) at DB Insurance, said, "First-time insurance fraudsters are often granted suspension of indictment, and even when we call to urge repayment, many respond by saying, 'Go ahead and sue me.' It is frustrating to see a society where people hide the stolen money, serve their time, and then live off the proceeds of their crime for the rest of their lives."

Insurance Fraud Is Becoming More Sophisticated, Organized, and Widespread... Urgent Need for Countermeasures

Insurance fraud is becoming increasingly sophisticated and organized, seemingly mocking legal and institutional loopholes, light punishments, and a shortage of investigators. Insurance planners who understand the complexities and loopholes of insurance policies have acted as brokers at the center of major fraud schemes. Medical professionals such as doctors and nurses have exploited the information asymmetry in their field to block investigations and openly commit insurance fraud. Auto repair shop operators have used their specialized knowledge to inflate repair costs and obtain excessive insurance payouts for personal gain.

More concerning is that ordinary people are now participating in insurance fraud. Young people, lured by the prospect of a quick windfall, have secretly conspired to commit fraud via social networking services (SNS) in order to recover investment losses from coins and stocks. Older adults, unable to resist the tempting offers of trusted insurance planners, have also fallen into the trap of insurance fraud. From staged auto accidents involving both perpetrators and victims, to false receipts for indemnity health insurance claims, to minor travel insurance scams, insurance fraud has now permeated everyday life.

Despite this situation, cooperation between agencies is lacking. The process of referring insurance fraud cases from insurance companies to financial regulators and then to investigative agencies is hampered by administrative silos, insufficient manpower, and restricted information, resulting in inefficiency. Rapidly advancing artificial intelligence (AI) technology is now being combined with insurance fraud to pose an even greater threat, but insurance companies and the government, constrained by outdated laws and systems, are failing to respond effectively.

More effort must be made to develop measures for the early prevention of insurance fraud. Experts argue that administrative sanctions and criminal penalties should be strengthened, as there are numerous cases where professionals such as planners, even after being convicted of insurance fraud, are re-employed and reoffend just a few years later. Insurance companies should avoid launching highly competitive products that offer excessive coverage and incentivize fraud. It is also essential to change the mindset of insurance consumers who take insurance fraud lightly, thinking, "It's just me, it won't matter."

Editor's Note"They deceived us, and my insurance premium went up." The amount lost to insurance fraud has exceeded 1 trillion won for three consecutive years, reaching an all-time high last year. Each fake diagnosis, staged accident, and exaggerated medical bill has accumulated, resulting in the shocking figure of 1.1503 trillion won. The problem is that all of these costs are ultimately passed on to honest policyholders in the form of higher premiums. We have thoroughly analyzed hundreds of court rulings and real-life cases to trace how the crime of "insurance fraud" operates. We also explored technological responses and effective institutional improvements, seeking solutions for its eradication.