[Exclusive] "Returned After Three Years and Defrauded 42.2 Billion Won Again"... Lenient Penalties Fuel Vicious Cycle of Insurance Fraud

Insurance Fraud Involving Agents Continues to Rise
No Provisions for Aggravated Punishment...
Inadequate Internal Controls at Insurance Companies

At the center of numerous insurance fraud cases have been "professionals" such as insurance agents, medical practitioners, and auto repair shop operators. These individuals exploited their expertise, current laws, and weak points in insurance contracts to obtain illicit gains. Through various methods such as issuing false medical certificates, staging fake accidents, and submitting exaggerated claims, they managed to deceive both insurance companies and investigative authorities. Experts unanimously agree that sanctions and penalties targeting these professionals must be strengthened. This is necessary to break the vicious cycle of fraud, lenient punishment, and repeat offenses.

An illustration depicting an insurance agent using ChatGPT to persuade a customer to sign up for insurance with dishonest intentions. ChatGPT

Insurance Agent-Related Insurance Fraud Up 71.2% in Three Years... Investigation Requests Also Up 65%

Insurance agents receive high incentives for bringing in many policyholders. Some of these agents lured customers with tempting offers, such as making it easy to receive insurance payouts, and profited from these schemes. Some even colluded with hospitals, acting as brokers for insurance fraud.

According to statistics from the Financial Supervisory Service, the number of agents caught for insurance fraud surged 71.2% in three years, from 1,178 in 2021 to 2,017 in 2024. During the same period, the total amount of damages increased by 42%, from 16.7 billion won to 23.7 billion won.

As the number of fraud cases involving agents has grown, so have related investigation requests. According to exclusive data obtained by Asia Economy from the office of Democratic Party lawmaker Kang Junhyun, the number of cases in which insurance companies requested investigations into agents involved in insurance fraud increased by 65% in two years, from 726 cases in 2022 to 1,197 cases in 2024. As of the first quarter of this year, 212 cases have already been filed.

Stricter Penalties Needed for Professionals Such as Agents

Under current law, there are no provisions for aggravated punishment even if an agent commits insurance fraud. Last year, when an amendment to the Special Act on Prevention of Insurance Fraud was introduced, aggravated punishment was discussed but ultimately omitted during the review by the National Assembly Legislation and Judiciary Committee due to concerns about excessive legislation. However, as the severity of agent-involved fraud has recently increased, different opinions are emerging.

Kim Sunjung, a special professor at Dongguk University School of Law, pointed out, "The Insurance Business Act includes a clause stating that insurance professionals must not commit insurance fraud, but this is an incomplete provision. There are no separate sanctions or penalty regulations for how to handle fraudulent acts. Therefore, it is necessary to supplement this with a government-initiated legislative amendment to introduce aggravated punishment." Lee Sujeong, a professor of criminal psychology at Kyonggi University, commented, "In every insurance fraud murder case involving multiple perpetrators, an agent was always involved. It is necessary to classify the severity of fraud and impose aggravated penalties, such as expulsion for the most serious cases."

Last month, the Supreme Court strengthened sentencing guidelines for fraud offenses by adding insurance fraud committed by professionals in fields such as medicine and insurance as special aggravating factors. Special aggravating factors refer to crimes where the method is particularly egregious and thus warrant a heavier sentence. Sentencing guidelines serve as a reference for judges in determining appropriate sentences. Ha Taeheon, a lawyer at Sejong Law Firm and a former Supreme Court research judge with a background as a dentist, explained, "Sentencing guidelines are only recommendations and are not binding. If insurance fraud involving agents does not decrease even after setting these guidelines, it may be necessary to consider legislative measures for aggravated punishment to regulate such cases more strictly than ordinary fraud."

Insufficient Controls on Agents with Criminal Records... Legislation Needed for One-Strike-Out and Public Disclosure

There are also many cases where agents who have already committed insurance fraud are re-employed and commit new offenses. Under the current Insurance Business Act, agents who have received a sentence of imprisonment or higher for fraud are restricted from registering for three years, but they can return to work after that period.

Agent A, who worked in Cheonan and Asan in South Chungcheong Province, embezzled 42.2 billion won in investment funds from five clients between 2015 and 2023 and was sentenced to eight years in prison in January. A had previously been sentenced to prison for similar insurance fraud in the early 2010s, but after a three-year disqualification, returned to the industry and committed fraud again.

Internal controls by insurance companies over agents with prior convictions were also inadequate. According to a survey by the Financial Supervisory Service last month of 105 insurance companies and corporate insurance agencies (GAs) regarding their agent appointment controls, only 32 (30.5%) refrained from appointing agents with a history of sanctions. Twenty-eight companies appointed such agents after a certain period had passed, and 43 companies did so after special approval from representatives, sales division heads, or branch managers. Of the 71 companies that appointed agents with a history of sanctions, 69 did not conduct any follow-up management after appointment. The Financial Supervisory Service plans to soon establish guidelines for agent appointment procedures to strengthen internal controls.

Some believe that guidelines alone are insufficient to solve the fundamental problem. There are also calls to completely bar agents convicted of insurance fraud from entering the financial market. Ha Taekyung, president of the Insurance Research Institute, stated, "The National Assembly must pass a law to permanently expel insurance agents involved in fraud through a one-strike-out rule to restore trust in the insurance system. If penalties and sanctions are lax, agents will continue to commit crimes and deceive honest consumers." Recently, lawmakers Yoo Youngha, Kang Junhyun, and Park Sanghyuk have introduced bills to immediately restrict or permanently expel agents with a history of insurance fraud, or to publicly disclose their names, without separate administrative procedures.

Increase in Fraud by Auto Repair Shop Operators... Need to Strengthen Administrative Sanctions Such as Suspension of Business and Revocation of Registration

For doctors, even if their crime is not related to medical practice, their license is revoked if they receive a confirmed sentence of imprisonment or higher. Although not to the same extent as doctors, some have proposed that professionals who abuse their expertise to commit illegal acts such as insurance fraud should also face administrative sanctions in their respective fields.

Recently, aside from agents and doctors, there has been a rise in insurance fraud cases involving auto repair shop operators. According to the Financial Supervisory Service, the number of people caught for "exaggerated repair cost claims by repair shops" increased by 49% in two years, from 746 in 2022 to 1,109 in 2024.

Under the current Automobile Management Act, only the issuance of "false repair estimates or statements" can result in administrative sanctions such as suspension of business. For other reasons, administrative sanctions are not possible even if the repair shop operator participates in insurance fraud. For example, if a repair shop operator conspires with a car owner to include pre-existing damage in an insurance claim, it constitutes insurance fraud but does not violate the Automobile Management Act. The scope of administrative sanctions under this law is narrow and the severity is low, resulting in cases where operators who have served prison sentences for insurance fraud return to commit new offenses.

The insurance industry believes that sanctions and penalties for repair shop operators need to be strengthened. In December last year, Democratic Party lawmaker Kim Yongman proposed an amendment to the Automobile Management Act for this purpose. Kim stated, "The Trucking Transport Business Act stipulates that if a person claims insurance money through false or dishonest means and receives a sentence of imprisonment or higher, their trucking license is revoked. Similar regulations are needed for the auto repair industry. If a repair shop operator is sentenced to imprisonment or higher for claiming insurance money through false or dishonest means related to car accidents, their registration should be revoked to strengthen consumer protection."

Editor's Note"They deceived, and my insurance premiums went up." For three consecutive years, the amount of damages caused by insurance fraud has exceeded 1 trillion won, reaching an all-time high last year. A single false medical certificate, a few fake accidents, and each exaggerated treatment claim have accumulated to create the shocking figure 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 thoroughly analyzed hundreds of court rulings and real-life cases to trace how the crime of "insurance fraud" operates. We have also sought technical responses and effective institutional improvements, and explored solutions for its eradication.