The headquarter of the Financial Supervisory Service in Yeouido, Seoul
FSS to expand investigation into data fabrication
By Na Jeong-ju
Three non-life insurance companies are facing a class action suit as a consumer agency is moving to gather customers to file for damages alleging the firms calculated premiums based on fabricated data.
The Financial Consumer Agency said Friday that it will file a class action suit against Dongbu Insurance, Hanwha General Insurance and Ergo Daum Direct for rigging their data. Ergo Daum is an online car insurance firm controlled by France's Axa General Insurance.
The agency claims more than 500,000 policyholders suffered financial damage due to the data rigging.
The group said it is accepting complaints from policyholders to file damages suits against the insurance firms.
"It's a serious violation to fabricate data on insurance premiums," said Cho Nam-hee, head of the consumer group. "The Korea Insurance Development Institute (KIDI) can't avoid responsibility because it didn't do its job properly to prevent such crimes. We suspect there could be more insurance firms that committed similar violations."
The three firms fabricated the ratio of insurance payouts to premiums, commonly called the "loss ratio," to artificially lower premiums. They did so in order to not lose customers, according to the consumer group.
According to the Financial Supervisory Service (FSS), Ergo Daum sold insurance at a price 3.1 percent lower than the appropriate level by rigging the loss ratio. Ergo Daum received a disciplinary warning from the FSS in April regarding the violation.
Dongbu and Hanwha have also received disciplinary measures for intentionally lowering premiums.
Industry watchers say such a manipulation in insurance premiums can worsen the firms' profitability and often lead to a liquidity shortage.
Following the incident, the FSS plans to launch a full-scale investigation into suspicions that other insurance firms have inflated or lowered premiums by rigging related data.
KIDI, which is responsible for monitoring possible irregularities concerning insurance policies, also faces a probe for dereliction of duty.
"We will strengthen punishment of firms and their CEOs involved in unfair business practices in an effort to protect the rights of consumers," an FSS official said, asking not to be named. "All firms found guilty of violations will face disciplinary action, including the suspension of operations. Their CEOs will be punished, too."
In February, about 1,500 financial consumers launched a class action suit against seven major life insurers, claiming they had charged too much in insurance premiums via price fixing. The seven firms were Samsung Life, Kyobo Life, Hanwha Life, Tongyang Insurance, KDB Life, Mirae Asset Life and Dongbu.
The country's anti-trust watchdog imposed a total of 365.3 billion won in fines on the insurance firms for collusion in 2011.