Financial authorities will launch fifth-generation indemnity health insurance on Tuesday, cutting premiums while reshaping coverage. The key change is stronger protection for serious illnesses and reduced benefits for nonsevere, noncovered services. Analysts say the shift could be seen by consumers as a cut in benefits, slowing early adoption.
The Financial Services Commission said Monday it is overhauling the product structure so coverage better matches standard medical costs covered by the national health system and treatment for serious diseases. At the same time, it plans to curb excessive care by scaling back nonsevere coverage. Regulators estimate premiums will be about 30% lower than fourth-generation plans and more than 50% lower than first- and second-generation plans.
Authorities expect the overhaul to ease worsening loss ratios, a structural problem in the indemnity insurance market.
They also announced incentives for first- and second-generation policyholders, including an optional discount rider and a contract-switching discount. Starting in November, the contract-switching program will cover 50% of fifth-generation premiums for three years.
Even so, many in the market doubt the new plans will take hold quickly. Consumers are likely to focus on the perception of reduced coverage. First- and second-generation policies, often structured to run until age 80 or 100, can be kept long-term and generally offer broader benefits, limiting the incentive to move to new products.
Insurers also point to the fourth-generation rollout, when even a 50% discount for one year led to only single-digit switching rates among first- through third-generation policyholders, dampening expectations for the fifth generation.
According to the General Insurance Association of Korea, the risk loss ratios by generation as of the end of last year at nine nonlife insurers launching fifth-generation plans Tuesday — Meritz Fire & Marine Insurance, Hanwha General Insurance, Lotte Insurance, Heungkuk Fire & Marine Insurance, Samsung Fire & Marine Insurance, Hyundai Marine & Fire Insurance, KB Insurance, DB Insurance and NongHyup Property & Casualty Insurance — were 118.6% for first-generation policies (simple average), 114.8% for second-generation, 138.4% for third-generation and 153.8% for fourth-generation.
Jeon Hyeon-uk, a team leader at the Financial Supervisory Service’s Insurance Product Dispute Division 2, said there are concerns the fifth generation could follow a similar path because fourth-generation loss ratios are high. But he said the fifth generation sets a 50% copayment rate for nonsevere, noncovered services, which could restrain use. “We expect the loss ratio to improve compared with the fourth generation,” he said.
An insurance industry official said regulators appeared to try to differentiate the fifth generation after the weak performance of the fourth. Still, the official said the key will be how many first- and second-generation policyholders switch, and early switching is likely to be limited because the switching discount begins in November. The official added that because the new structure distinguishes between severe and nonsevere cases, inquiries are expected to rise for now over whether it is better to keep existing coverage or switch.
* This article has been translated by AI.
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