Ten Percent of Insurance Benefits Go to Con Artists

Insurance fraud to get free insurance money is on the rapid rise.

Systematic and sophisticated methods are emerging, and cruel criminal acts that go against humanity are thriving.

Insurance fraud is claimed to cause “leaks” in insurance benefits, resulting in burdening policyholders and the national economy, and devastating innocent people in the process, which are the reasons cited by people who say it needs to be eliminated.

Against this backdrop, the authorities and the Korea Non-Life Insurance Association designated this year as the “Year of Eradicating Insurance Crime” and stepped up efforts to root out insurance-related scams.

Annual Benefits of 1.3 Trillion Won Are Lost-

According to the Financial Supervisory Service (FSS) on January 31, the number of insurance scams detected from January to September last year stood at 11,180, a 79.1 percent increase year-on-year compared to 2003.

As a result, the payment of claims rose by 77.7 percent to 74.5 billion won.

The government and the insurance industry estimate that last year, 10 percent of claims worth 13 trillion won paid by private insurers, or some 1.3 trillion won, went to insurance crooks.

“Innocent policyholders who pay premiums regularly are actually offering 1.3 trillion won annually to con artists,” said the chairman of the Non-Life Insurance Association Ahn Gong-hyeok.

Benefit losses due to fraud drive up insurance premiums the following year, and innocent policyholders assume the resulting loss.

Systemized, Sophisticated, and Diversified Techniques-

The team head of the insurance investigation team, Kim Seong-sam, at the FSS noted, “With organized gangs jumping into insurance scams, the techniques are increasingly becoming more systemized.”

Last November, the Jeollabuk-do Iksan police station prosecuted a large group of insurance con artists involving 277 individuals, including 74 organized crime members, medical staff members, and others. They had faked traffic accidents disguised as perpetrators and victims, or had purposefully made cars that violated traffic rules to cause accidents, thereby claiming 2.0 billion won from 24 insurance companies in 256 cases since 1998.

The fraudulent activities have clearly become intelligent and cruel. A Mr. Lee, 43, who was arrested last May, made dozens of his relatively poor restaurant workers purchase health insurance products from 2000. At the same time, he won doctors over to his side by threatening to disclose their illegal disposal of medical waste. Lee either forced the policyholders to do rigorous exercises or fed them sugared water right before diagnosis, and they were easily diagnosed with hypertension or diabetes. Lee and those involved earned 850 million won worth of benefits from 11 insurers over 164 cases until last March, but finally got caught.

Scant Awareness Increases the Losses-

Insurance fraud is a typical, advanced type of crime as a nation’s per capita income rises. The chief of the Insurance Crime Prevention Center of the Non-Life Insurance Association, Yang Doo-seok, said, “Koreans have the wrong perception that only the big insurance companies are affected by fraudulent activities, which is why they are excessively generous to insurance scams.”

“The innocent driver, being the target of insurance fraud, who unknowingly caused an accident feels guilty and suffers from huge emotional distress in the process,” section chief Chang with the Financial Supervisory Service pointed out.

Suk-Ho Shin Seung-Jin Kim kyle@donga.com sarafina@donga.com