[Exclusive] Four Out of Five Insurance Fraud Cases Remained Unresolved Last Year... "Control Tower Needed"

Control Tower Needed to Unify Fragmented Responses
Insurers, Financial Supervisory Service, and Police Face Limits with Separate Approaches
In Advanced Countries, Control Towers Lead Insurance Fraud Investigations

In August of last year, for the first time in eight years since the enactment of the Special Act on the Prevention of Insurance Fraud, a revision was passed. The industry expected that insurance fraud would decrease. However, the result was a record-high scale of insurance fraud. This is a signal that the law and system need to be improved. Experts unanimously agree that an intergovernmental control tower is essential to effectively prevent insurance fraud. They point out that under the current structure, where each agency operates independently, it is difficult to respond efficiently, and there are limits to both prevention and investigative capabilities.

Inefficient Inter-Agency Cooperation... Three Years Just to Obtain a Single Document

The biggest weakness in the current response to insurance fraud is the lack of information sharing and cooperation between agencies. Under the current investigative structure?where cases are passed from insurance companies to financial supervisory authorities, then to the police, and finally to the prosecution?it can take several years just to examine a single case.

Chae Kyunghwan, Senior Investigator at Hyundai Marine & Fire Insurance's Auto Insurance Investigation Team, said, "Insurance companies do not have investigative authority or the right to access materials, so it takes weeks just to obtain a single piece of CCTV footage from investigative agencies. In many cases, a quick check of one document would easily confirm whether fraud has occurred, but the procedures for requesting information disclosure or sending official documents are complicated." Jo Jayoung, Manager of Hanwha Life's SIU (Special Investigation Unit), also commented, "When it comes to verifying medical judgments such as diagnoses for specific diseases or the need for long-term hospitalization or outpatient care, it can take as long as two to three years to get confirmation from official institutions. If there were a control tower involving the Health Insurance Review & Assessment Service, the National Health Insurance Service, and both life and non-life insurance companies, it would be much easier to uncover insurance fraud."

Even after painstakingly securing evidence and requesting an investigation on the grounds of confirmed fraud, it takes several more years to receive the results. According to data exclusively obtained by Asia Economy from the office of Representative Yoo Youngha of the People Power Party, the number of insurance fraud investigations requested by insurance companies and the Financial Supervisory Service was 8,245 in 2022, 6,789 in 2023, and 9,657 in 2024, with the number expected to exceed 10,000 this year. In contrast, the number of cases that resulted in a final conclusion such as criminal punishment (imprisonment, fines, etc.) was 3,097 in 2022, 2,520 in 2023, and 1,946 in 2024, showing a steady decline. The ratio of concluded cases to investigation requests by year dropped from 38% in 2022, to 37% in 2023, and to 20% in 2024. As of last year, this means that in four out of five cases where an investigation was requested on suspicion of insurance fraud, the results could not be confirmed.

Currently, the Financial Supervisory Service, National Police Agency, National Health Insurance Service, and insurance companies are continuing cooperation to prevent insurance fraud through investigative councils or memorandums of understanding (MOUs). However, it is difficult to achieve substantial results through these methods. Kim Taehoon, Director of the Insurance Fraud Response Team at the Financial Supervisory Service, stated, "For organized insurance fraud to be punished, the case must go through investigative agencies such as the police and prosecution before it is concluded. If a government-level control tower is established, there will be greater synergy in this process."

In Advanced Countries, Intergovernmental Control Towers Lead Insurance Fraud Investigations

In Korea, for crimes such as virtual asset crime, financial and securities crime, voice phishing, and national finance crime, there are joint government investigation teams under the prosecution. Even for voice phishing, which causes annual damages of 800 billion won, there is a control tower in the form of a joint investigation team. However, for insurance fraud?a crime that similarly affects people's lives and results in damages exceeding 1 trillion won?there is not even a joint investigation team.

It is different in advanced countries. In the United States and the United Kingdom, control towers involving both government investigative agencies and the private sector hold the key to responding to insurance fraud. Since 1994, the United States has responded to insurance fraud through the Federal Insurance Fraud Prevention Act. Eight related organizations?including the Insurance Fraud Bureau (IFB) under state insurance departments, the Federal Bureau of Investigation (FBI), the National Insurance Crime Bureau (NICB), and insurance company SIUs?cooperate in investigations.

The United Kingdom established the Insurance Fraud Bureau (IFB) in 2006, specializing in the prevention and response to insurance fraud. The IFB brings together the Association of British Insurers (ABI), the Insurance Fraud Enforcement Department (IFED) under the London Metropolitan Police, and government agencies to focus on detecting and preventing insurance fraud.

Korea also once had a control tower specializing in insurance fraud. After the Kang Ho-soon case in 2009, the government established a joint insurance crime task force under the Criminal Division 4 of the Seoul Central District Prosecutors' Office, led by the Office of the Prime Minister. After achieving several results and being extended, the task force was transferred to the Criminal Division of the Supreme Prosecutors' Office as a permanent organization in 2019, but its operations effectively ceased. In 2022, the task force was reassigned to the Criminal Division 9 of the Seoul Central District Prosecutors' Office, but it has since become virtually inactive. Unlike in the United States and United Kingdom, where permanent organizations are established by law, Korea has operated only temporary task forces.

Control Tower Essential for Data Integration for Expert Knowledge and AI Utilization

A control tower is also essential to prevent cutting-edge insurance fraud enabled by advances in artificial intelligence (AI) technology. This is because the key to countering such fraud is to gather big data for AI advancement in one place.

Currently, insurance companies can only use the data they collect themselves. Even if a customer is blacklisted for frequent insurance fraud at Company A, Company B has no way of knowing this. Data held by government agencies also exists in isolation. If a control tower were to integrate and utilize this data, it could make a significant contribution to preventing insurance fraud. Over time, the accumulated data would serve as a foundation for advancing AI.

A control tower is also more efficient for the immediate sharing of expert knowledge and joint response to insurance fraud. While fraud techniques are becoming increasingly sophisticated, each agency is losing expertise due to manpower shortages and personnel transfers. Although insurance companies, the Financial Supervisory Service, and investigative agencies share criminal cases through consultative bodies, there are limits to understanding the detailed methods of fraud. In a survey conducted by Asia Economy of SIU heads at 47 insurance companies, the most urgent system needed was identified as the establishment of a control tower, underscoring this point.

Oh Jungun, Head of the Auto SIU at KB Insurance, said, "Anyone working in insurance fraud investigation will agree on the need for a control tower like those in advanced countries. Even a one-point revision to establish a legal basis for its creation should be pursued as soon as possible to set up an intergovernmental body." Hwang Hyuna, Head of the Insurance Law Research Office at the Korea Insurance Research Institute (Attorney), advised, "To effectively respond to increasingly complex insurance fraud, not only insurance companies and financial supervisory authorities, but also the Ministry of Health and Welfare, Ministry of Land, Infrastructure and Transport, National Police Agency, and other relevant government ministries must cooperate organically. To institutionalize and systematize this cooperation, a permanent intergovernmental control tower should be established."

Editor's Note"They deceived, and my insurance premiums went up." The amount of damages caused by insurance fraud has exceeded 1 trillion won for three consecutive years, reaching an all-time high last year. Each fake diagnosis, fraudulent accident, and exaggerated treatment claim has accumulated to a shocking total of 1.1503 trillion won. The problem is that all these costs are ultimately passed on to honest policyholders in the form of higher premiums. We have analyzed hundreds of court rulings and real-life cases to trace how the crime of 'insurance fraud' operates. We have explored both technical responses and effective institutional improvements, seeking solutions for its eradication.