As the amount of insurance fraud detected in Korea has surpassed 1 trillion won annually, a vicious cycle of rising insurer loss ratios and premium increases continues. Insurers have moved to build artificial intelligence (AI)-based fraud detection systems, but detection remains difficult as organized crime linked to hospitals grows. Because tracking the increasingly sophisticated methods of insurance fraud has become harder, some point out that the surveillance system needs to be expanded.
In an interview with Seoul Economic Daily on the 7th, Yoon Myung-seong, president of the Korean Insurance Crime Association, proposed that "a detective system that can cooperate with insurers and investigative agencies must be enacted into law in order to prevent and eradicate insurance fraud." Yoon graduated from the Korean National Police University and served as spokesman for the Korean National Police Agency, chief of the Sejong Police Agency, and head of the Police Investigation Training Institute, among other posts. While serving in the police, he took an interest in insurance fraud and earned a doctorate in criminology, and he founded the Korean Insurance Crime Association, composed of professors, former prosecution and police investigators, and lawyers. After retirement, he served as a professor at Inha University Law School and is currently a full-time auditor at Samsung Life Service.
Yoon pointed out that the crimes detected as insurance fraud are still only the tip of the iceberg. "The hidden crime that goes undetected as insurance fraud reaches 10 trillion won a year," he explained, "and the amount actually detected is only one-tenth of that." He analyzed that the reason so many crimes escape the eyes of the police and insurers is a loose surveillance system. Insurance fraud occurring in Korea is mainly uncovered through police investigations, the Financial Supervisory Service, and insurers' own investigations. "Because insurance fraud grows in proportion to the size of the economy, advanced countries have set up tight surveillance networks against various illegal activities," he said, introducing insurance detectives as a representative field. "The more advanced the country, such as the United States, Japan, and Europe, the more actively they utilize detectives from insurers or investigative agencies," Yoon said, adding that "their effectiveness has already been sufficiently proven."
He also proposed abolishing the cap on insurance fraud whistleblower rewards. Currently, the Financial Supervisory Service pays insurance crime whistleblower rewards on a differentiated basis of up to 0.5% depending on the amount detected, with a cap of 2 billion won. In the field, people point out that this is far short compared with the amount of insurance fraud prevented, detected, or recovered through tips. "A considerable number of insurance fraud detections begin with a decisive tip," Yoon said, "and if the rewards rise, we can expect not only more tips from insiders and citizens but also a self-purification effect." He added, "If whistleblower rewards are raised, it will reduce harm not only to insurers but also to ordinary policyholders suffering from premium increases."
He also emphasized strengthening punishment for those involved in insurance fraud. Under current law, insurance fraud is classified as a serious offense and is subject to the Special Act on the Prevention of Insurance Fraud. But the actual punishment rate remains in the single digits. "All crimes decrease when the three requirements of punishment—severity, certainty, and swiftness—are met," Yoon said. "In insurance fraud, prolonged investigations frequently lead to hospitals closing down or medical records disappearing." He added, "Even if an insurance fraud crime is uncovered, punishment is mainly fines, and the fines only amount to the level of recovering the insurance payout. Rather than reducing sentences for those who took part in the crime on grounds such as extenuating circumstances, punishment must be further strengthened."
Although insurers are introducing AI-based fraud detection systems (FDS) and other tools, he assessed that the crime-detection capabilities of professional investigators are still excellent. In particular, he gave a thumbs-up to the investigative capabilities and achievements of the Special Investigation Unit (SIU), made up of about 400 members including police investigators. "By cooperating with Samsung Life's SIU and the police, we achieved the feat of catching a ring of insurance fraudsters worth tens of billions of won," he said. "I hope this becomes an occasion for each insurer to actively utilize professional personnel with police backgrounds."
He also expressed his hope that criminal attempts would decrease through strengthened detection capabilities and expanded punishment for insurance fraud. "As the saying goes, 'everyone's responsibility is no one's responsibility,' and the climate in which all citizens experience harm yet do not take it seriously is enlarging the damage," Yoon said. "For a policyholder it is only a matter of premiums rising by a few thousand won, but the amounts criminals unjustly take reach tens of billions of won. Please stay alert."
