As the implementation of a discount system for health insurance approaches in November, voices of concern regarding profitability are emerging within the insurance industry. With losses in health insurance reaching nearly 1.9 trillion won annually, there are worries that if the transition to the fifth generation of policies occurs primarily among low-claim policyholders, the reduction in claims may not sufficiently offset the decline in premium income.
According to industry reports on October 15, the loss ratios for health insurance are as follows: 113.2% for the first generation, 112.6% for the second generation, 138.8% for the third generation, and 147.9% for the fourth generation.
The risk loss ratio indicates the proportion of incurred losses compared to the risk premiums that fund claim payments. A ratio exceeding 100% signifies that the burden of claim payments outweighs premium income.
The financial authorities plan to introduce optional discount riders and contract conversion discounts for first and second generation policyholders without re-enrollment conditions starting in November.
Industry stakeholders are particularly focused on the impact of existing policyholder migration on profitability. Policyholders who do not frequently visit hospitals may be inclined to switch to the fifth generation, which offers lower premiums despite reduced coverage for non-reimbursable services. Conversely, those who frequently utilize services such as physical therapy and non-reimbursable injections may find it more advantageous to maintain their current plans.
If the transition primarily involves low-utilization policyholders, insurance companies may experience a decrease in premium income without a corresponding reduction in claim payments. This could lead to a higher proportion of high-claim policyholders remaining in existing plans, thereby increasing the loss ratio burden for those contracts.
However, the fifth generation policies have narrower coverage compared to existing products, which could help reduce claim payments. The balance between decreased premium income and reduced claim payments will depend on the composition of transitioning policyholders and the scale of claims.
Losses in health insurance continue to mount, with deficits recorded at 1.53 trillion won in 2022, 1.97 trillion won in 2023, 1.62 trillion won in 2024, and 1.87 trillion won in 2025.
Currently, 16 companies, including seven life insurers and nine non-life insurers, have launched fifth generation health insurance products. However, the presence of companies that previously did not offer health insurance among those not selling these products complicates the assessment of profitability concerns.
A financial industry official noted, “As the population ages, more customers are likely to retain first and second generation policies. Unless the authorities devise fundamental solutions, we may continue to see adverse effects such as immediate declines in premium income.”
* This article has been translated by AI.
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