Insurance in the New Era: The Introduction and Transformation of the Fifth Generation Actual Loss Medical Insurance

Next month, as the fifth-generation actual-loss medical insurance (actual-loss health insurance) is about to be launched, the actual-loss medical insurance market is expected to shift from a structure that broadly covers non-reimbursable items to a low-cost insurance product centered on essential and critical care.

According to news from financial authorities and the insurance industry on the 26th, major casualty insurance companies are preparing to introduce the fifth-generation actual-loss medical insurance, with sales targeted for early May. The biggest feature of the new product is a substantial reduction in premiums, along with a focus on covering necessary treatments. Under standardized assumptions, the premium for a man in his 40s is expected to be about 17,000 won, while for a woman in her 60s it is expected to be about 40,000 won. Taking into account current premiums for the second-generation actual-loss medical insurance—around 45,000 won for men in their 40s and about 112,000 won for women in their 60s—the premium burden is expected to fall to roughly 40% of that of the existing second-generation product.

The coverage structure will change to one that distinguishes between critical and non-critical conditions and applies differential treatment accordingly. If the fourth-generation actual-loss medical insurance did not distinguish whether an item was critical and instead broadly covered non-reimbursable items, then the fifth generation will keep coverage for critical non-reimbursable items as is, but will reduce the compensation limits and compensation rates for non-critical non-reimbursable items. For items that are controversial due to alleged overuse—such as manual therapy or newly introduced medical technologies that have not been registered—coverage will be excluded, meaning they are left outside the scope of insurance protection. In addition, the personal cost-sharing ratio for non-critical non-reimbursable items will be increased to 50%. For reimbursable items, the personal cost-sharing ratio for inpatient treatment will remain at 20%, but the personal cost-sharing ratio for outpatient treatment plans will be linked to the personal cost-sharing ratio under National Health Insurance, which will increase the portion borne by patients in part. Financial authorities believe that these adjustments are necessary to reduce unnecessary medical utilization and to stabilize the premium structure of actual-loss medical insurance, which has been shaken by the expansion of non-reimbursable care services.

The backdrop to this revision is the long-term accumulated burden of rising premiums. According to historical data from the Financial Supervisory Service, premiums for the second-generation actual-loss medical insurance have increased by about 12% on average each year over the past decade. In the early actual-loss products, policyholders bore 10% of costs for reimbursable items and 20% for non-reimbursable items; the premiums were relatively low and coverage was broad, which tended to lead to increased hospital usage. As a result, the rate of increase in claim payments has continued to rise, exceeding 8% in 2024. As premiums rise rapidly, more policyholders are unable to maintain their contracts. As of 2024, the surrender rate for policies holding first- and second-generation actual-loss coverage is about 5%, translating to roughly 1.14 million people. In particular, senior groups are more vulnerable to premium increases, and there have long been calls for products that can maintain necessary coverage while lowering the burden.

Financial authorities plan, with the launch of the fifth-generation product, to guide existing policyholders to switch. In early May, they will release—at the same time—a contract buyback plan to promote the conversion of first- and second-generation contracts, as well as the main directions for optional riders. Related systems are expected to be implemented in the second half of the year. According to messages from both inside and outside the industry, for about 16 million policies of the first generation and early second-generation products without re-enrollment conditions, discussions are underway on a proposal that would offer an approximately 50% premium discount within 3 years if the policy is transferred to the fifth generation. Optional riders to be introduced for existing policyholders are also planned; the mentioned approach is to lower premiums by excluding certain coverage, such as the three major non-reimbursable items.

However, concerns about side effects have also emerged in the market. If policyholders who seek care less frequently and are relatively healthy switch first to the fifth-generation product with lower premiums, the loss ratio of those who remain in the second-generation product could deteriorate further. At present, the loss ratio is 113.2% for the first generation and 112.6% for the second generation, both lower than 138.8% for the third generation and 147.9% for the fourth generation, but if the composition of policyholders changes, the loss burden could increase again. Ultimately, this revision can be viewed as an adjustment that intertwines policy intentions to reduce consumer burdens and curb over-treatment with concerns that the profitability structure of existing products will worsen. This trend may, in the future, lead actual-loss medical insurance to shift from products that broadly cover all medical expenses toward designs centered on necessary treatment.