Insurance fraud becoming bigger, better organized

The Korea Times

The Korea Times

Finance

Thu, November 30, 2023 | 14:22

Markets

Insurance fraud becoming bigger, better organized

Posted : 2022-06-02 17:05

Updated : 2022-06-03 16:32

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Financial authorities and insurers strengthen inspection to curb growing insurance fraud

By Anna J. Park

Insurance fraud in the country is not only becoming more prevalent in recent years but also more "organized" due to advances in fraud methods, data showed. Insurance companies and supervisory authorities are thus pondering ways to strengthen their monitoring for fraud attempts.

According to the Financial Supervisory Service (FSS) and Rep. Kang Min-kuk of the ruling People Power Party, the total amount of money involved in insurance fraud cases stood at 943 billion won ($752 million) last year, which is up 5 percent from the year before. The number of fraud suspects, meanwhile, saw a year-on-year decrease of 1.2 percent. This means that the average fraud case is dealing with bigger amounts of money with fewer people involved, which is explained by the increasing development and sophistication of fraud methods in recent years.

The problem is not something that can be ignored by insurers, as the total amount of money caught up in insurance fraud is increasing every year, from 730 billion won in 2017 to 943 billion won in 2021. When the fraud cases caught by the insurers during the past five years since 2017 are combined together, the total adds up to 4.25 trillion won with over 451,707 suspects.

Ninety-two percent of fraud cases over the past five years, involving a total of 3.8 trillion won, were related to indemnity insurance, while 358 billion won worth were related to life insurance fraud.

In case of indemnity insurance, such as car insurance or medical non-life insurance, perpetrators seem to find it easier to recruit accomplices to commit the crime. Those accomplices are recruited online, especially through social media outlets, and were mostly jobless young people in their early 20s. The accomplices were enticed with false offers of high-paying part-time jobs. Aiming to attack loopholes in various insurance policies, fraud methods have also become versatile, ranging from intentional traffic collisions targeting only vehicles that commit lane violations to hospital employees' manipulation of medical charts.

Those in their 20s have also been increasingly becoming the masterminds of fraud over the years. While those in their 50s accounted for 23 percent of insurance fraud perpetrators, those in their 20s now account for 19 percent of all insurance crime perpetrators, up from 15 percent in 2019.

Only about 15.2 percent of the fraud money has been retrieved by the insurers in indemnity insurance fraud cases, and in 17.1 percent of life insurance crimes.

"In insurance fraud cases, the money is retrieved only after the completion of judiciary measures, which generally take many years," an FSS official explained. "As perpetrators of insurance fraud tend to say that they've used up all the money in the years following their crime, it's hard for insurance companies to retrieve their money."

In response to the growing insurance fraud cases, the financial authority is strengthening joint inspections with insurers to uncover organized fraud crimes.

"Insurance fraud wreaks havoc on the majority of insurance holders, as it raises insurance premiums," Rep. Kang pointed out. "The financial authorities need to strengthen efforts to inspect and regulate insurance fraud."

Last year, the losses from the local indemnity insurance industry stood at 2.8 trillion won, an increase of 360 billion won from the previous year. With the losses growing, the average insurance premiums have risen by 14 percent this year.

annajpark@koreatimes.co.kr