Auto insurance fraud rises despite tougher penalties

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The amount of detected auto insurance fraud has continued to rise each year, reaching 570 billion won ($388 million) last year, despite tougher penalties for organizing or participating in insurance fraud under the amended Special Act on the Prevention of Insurance Fraud, according to the Financial Supervisory Service (FSS), Thursday.

Fraudulent claims are increasing the insurance burden on honest policyholders, prompting the FSS to sign a memorandum of understanding with the National Police Agency, the Korea Road Traffic Authority and the General Insurance Association of Korea to enhance collaboration in combating the growing sophistication and organization of insurance fraud.

“Auto insurance fraud is on the rise every year, with methods becoming more sophisticated and organized,” FSS Deputy Director Kim Seong-wook said. “To eliminate evolving fraud schemes, it is crucial for relevant agencies to share information efficiently and coordinate joint efforts that utilize each organization’s expertise and infrastructure.”

The financial watchdog reported that the total value of detected vehicle insurance fraud cases has been increasing annually — 383 billion won in 2020, 420 billion won in 2021, 471 billion won in 2022, 548 billion won in 2023 and 570 billion won last year.

Vehicle insurance now represents an increasingly large portion of total insurance fraud. In 2023, it made up almost half — 49.6 percent — of the total detected fraud amounting to 1.15 trillion won.

The consequences of car insurance fraud ultimately fall on policyholders, as illegitimate claims push loss ratios higher, which in turn results in premium increases for all insured members.

Comparing last year’s detected vehicle insurance fraud with the total premiums paid by policyholders — 21 trillion won — the estimated fraud-related cost per vehicle is around 22,000 won. Additional factors driving up premiums include higher labor costs for fraud detection and legal cases over suspected fraudulent claims.

To boost the detection of insurance fraud, the FSS, in collaboration with the police and other related agencies, plans to strengthen the sharing of information through multiple channels on suspected vehicle insurance fraud involving staged traffic accidents.

They also aim to enhance suspect identification capabilities by applying analysis methods for minor injury patients using traffic accident reconstruction programs. Cooperation will also be expanded in investigative techniques for intentional accidents, such as analyzing CCTV footage.

Additionally, the insurance industry is advocating for legal amendments to promptly revoke the licenses of insurance agents, medical professionals and others involved in fraud who possess specialized insurance knowledge.