Insurance fraud in South Korea is estimated to amount to 10 trillion won ($7.2 billion) a year. While the government and the industry have stepped up enforcement, they remain outmatched by increasingly sophisticated and organized fraud schemes. Some argue that catching the roughly 100,000 people who commit insurance fraud each year will require larger whistleblower rewards and tighter monitoring.
Yoon Myung-sung, head of the Korean Society of Insurance Crime, named the removal of the cap on insurance fraud whistleblower rewards as an urgent priority in a recent interview with Seoul Economic Daily at a Samsung Life office in Yeongdeungpo-gu, Seoul. Yoon graduated from the Korean National Police University's law department (4th class) and served as spokesperson for the Korean National Police Agency, chief of the Sejong Police Agency and head of the Police Investigation Training Institute. Driven by an interest in insurance crime, Yoon earned a doctorate in criminology while serving as a police station chief, and founded the Korean Society of Insurance Crime, made up of professors, former prosecutors and police investigators, and lawyers. After retiring, Yoon served as a professor at Inha University Law School and is now standing auditor at Samsung Life Service.
The Financial Supervisory Service currently pays insurance crime whistleblower rewards of up to 0.5% of the amount detected, capped at 2 billion won, on a sliding scale. But this is seen as far short of the amounts that tips help prevent, detect or recover. "A large share of insurance fraud cases begin with a decisive tip," Yoon said. "Higher rewards would not only encourage tips from insiders and citizens but could also produce a self-correcting effect. In the end, this would reduce harm not only to insurers but also to ordinary policyholders who face higher premiums."
Yoon also described a reality in which hidden, undetected insurance fraud runs to 10 trillion won a year, while the amount actually detected is just one-tenth of that. One cause, Yoon said, is a loose monitoring system. Insurance fraud is exposed mainly through police investigations, the Financial Supervisory Service and insurers' own inquiries. "Because insurance fraud grows in proportion to the size of the economy, advanced countries have built double and triple layers of tightly woven monitoring against various illegal activities," Yoon said, citing insurance investigators as a leading example. In Japan, a private investigator law in force since 2006 has allowed insurers to employ their own fraud investigators or commission private investigators to handle insurance-related cases such as fraud, traffic accidents and medical disputes.
In South Korea, a 2020 revision to the Credit Information Act removed a "ban on private investigators," giving the occupation legal recognition. While the title "private investigator" can now be used, the legal basis for the role and its work remains unclear, so activity is still constrained by concerns such as violations of privacy law. "The more advanced the country — the United States, Japan or those in Europe — the more actively it uses private investigators from insurers or investigative agencies," Yoon said. "Since the effect has already been well proven, we should move quickly to legislate for its introduction."
Yoon also called for tougher punishment of those involved in insurance fraud. Insurance fraud is classified as a serious offense subject to the Special Act on the Prevention of Insurance Fraud, but the actual conviction rate remains in the single digits. "In criminology, all crime declines when punishment meets three conditions — severity, certainty and swiftness," Yoon said. "But with insurance fraud, prolonged investigations often lead to hospitals closing down or medical records disappearing, and even when crimes come to light, punishment tends to be limited to fines, with the fines amounting to no more than the recovered insurance payouts. Punishment must be strengthened, with no exceptions for anyone who takes part in the crime."
Yoon also stressed that human monitoring remains important even as detection systems become more advanced with technologies such as artificial intelligence. "Insurers are adopting sophisticated systems, including AI-based fraud detection systems (FDS), that can detect signs of improper claims in advance," Yoon said. "But to avoid infringing on the rights of honest policyholders, the human role is becoming more important." The role of special investigation units (SIUs), staffed mainly by former police investigators, is growing, Yoon said. According to Samsung Life, its SIU detected fraud worth 14.5 billion won on its own last year. Of that, 65.5%, or 9.5 billion won, was detected by the SIU before payouts were made, in cases where fraud was attempted but not yet under criminal investigation. "Working with Samsung Life's SIU and the police, we uncovered a ring behind insurance fraud worth tens of billions of won that involved hospitals, doctors and brokers," Yoon said. "I hope this becomes a catalyst for insurers to make active use of specialized personnel with police backgrounds."
Yoon also expressed hope that the rising trend in insurance fraud would reverse. "As the saying goes, 'everyone's responsibility is no one's responsibility,' and a climate in which the public experiences harm yet does not take it seriously is making the damage worse," Yoon said. "For each individual it amounts to just a few thousand won more in premiums, but in reality, honest policyholders end up sharing the burden of the profits that some improper recipients gain — amounts running to tens or hundreds of billions of won. Please look at this with a sense of urgency."
