The financial authorities introduced the "fifth-generation indemnity health insurance" to curb overtreatment and prevent insurance payout leakage, but the insurance industry itself is reluctant to sell it. Some insurers have not launched it, and even those that have are cautious, limiting sales channels.
According to the Financial Services Commission on the 10th, a total of 16 companies—seven life insurers and nine non-life insurers—have launched fifth-generation indemnity health insurance so far. Including Shinhan EZ General Insurance, scheduled for launch next month, the total comes to 17. That is less than 40% of all 52 insurers (22 life insurers and 30 non-life insurers).
Even insurers that have rolled out products are not engaging in aggressive sales. Some insurers, including Samsung Life Insurance, are selling mainly through captive agents even after approval, while limiting sales via general agencies (GA). Online sales channels are also lacking. On the online platform "Insurance Damoa" guided by the financial authorities, only eight insurers (Hanwha, Tongyang, NongHyup Non-Life, DB Life, KB Non-Life, Samsung Fire & Marine, Meritz Fire & Marine, Lotte Non-Life Insurance) actually allow enrollment.
The fifth-generation indemnity health insurance reduces coverage for non-reimbursable items and is restructured around essential and severe treatments. While premiums are 40% to 50% cheaper than generations one through four, items blamed for worsening insurers' loss ratios—such as manual therapy or extracorporeal shock wave therapy—are excluded from coverage.
The financial authorities expect insurers' loss ratios to improve with the introduction of fifth-generation indemnity health insurance, but insurers worry that selling it will worsen the contractual service margin (CSM). CSM is an indicator that discounts to present value the profit an insurer expects to earn in the future from a contract. It improves as premium income rises and claims payments fall.
Insurers believe CSM will deteriorate if fourth-generation policyholders switch to the fifth generation. Policyholders who pay premiums steadily but rarely visit hospitals are likely to move to the fifth generation; in that case, premium income declines while claims payments see little change, hurting profitability.
The conversion of first- and second-generation policyholders is also a burden. The financial authorities plan to allow them to switch to fifth-generation products within the same insurer without separate underwriting. But if this move significantly lowers premiums compared with existing levels, a decrease in insurers' income is inevitable. Some in the industry also say that if premiums are cut by 50%, annual net profit could drop by at least 10%.
Even if the product structure is improved, the possibility of a worsening loss ratio remains. Over time, policyholders may find loopholes in indemnity insurance and change their usage patterns, leading to a resurgence of overtreatment. In fact, by generation, loss ratios worsened the more recently products were launched: first generation 113.2%, second 112.6%, third 138.8%, fourth 147.9%.
For this reason, many insurers are opting to wait and see the profit-and-loss trend rather than race to capture the market. An industry official said, "The fifth-generation indemnity health insurance excludes coverage for manual therapy and extracorporeal shock waves, which were major culprits in worsening loss ratios, so there is room for improvement in insurers' revenue, but there could be side effects such as an immediate deterioration in premium income, so the mood is to watch for now," adding, "This trend is likely to continue for the next few years."