gettyimagesbank

Insurance companies are halting the sale of proportional coverage insurance policies for critical treatments such as cancer, brain and heart conditions following warnings from the Financial Supervisory Service (FSS).

These policies provide higher coverage limits based on treatment costs. The financial watchdog views these types of products as encouraging excessive medical procedures and increasing the likelihood of insurance fraud.

However, insurers are voicing complaints, saying that excessive regulatory intervention limits consumer choice and dampens their motivation to develop new products.

The FSS convened department heads responsible for health and injury insurance on Thursday and issued administrative guidance to halt the sale of products that base payouts on medical expenses.

This move is seen as a follow-up to the FSS's earlier inspection into the current state of cancer treatment coverage. In response to the insurance industry's competition to expand cancer treatment benefits, the FSS began a review process in July.

The watchdog pointed out that the structure, where high insurance payouts are granted for significant medical expenses, could undermine the integrity of the national health insurance copayment system, distorting the health care system and causing societal losses.

Products that use medical expenses as a basis for insurance payouts are designed to provide coverage once the annual medical expenses meet certain thresholds.

Treatment for major diseases — cancer, cerebrovascular diseases and heart problems — are typical examples. These products are divided into two types: fixed-amount and proportional.

Fixed-amount policies provide a set payout once the conditions are met, regardless of the actual medical expenses incurred. Proportional policies, on the other hand, offer payouts based on the consumer's actual medical expenses over the year, with the payout proportional to the amount spent.

The FSS raised concerns about the proportional products, as payouts are based on treatment costs, which can encourage excessive medical expenses.

Industry officials said the possibility cannot be ruled out that additional types of coverage beyond the three major treatment categories could also be subject to suspension, complaining about the repeated sales restrictions imposed by financial authorities.

Earlier this year, the FSS criticized the excessive competition surrounding products like single-occupancy hospital room rider policies, leading to a consistent reduction in these types of coverage. The watchdog pointed out that these products could potentially increase the rate of single-occupancy room stays, which could lead to unnecessary long-term hospitalizations.

Additionally, the FSS criticized excessive competition in products like flu insurance and short-term payment life insurance, leading to regulatory actions that have restricted their sale.

"It seems that the more the FSS intervenes in sales-related matters, the harder it becomes to aggressively promote products," an official from a major insurance company said. "The restriction on the three major treatment costs is an issue to watch closely, as it could potentially lead to a block on other proportional coverage products as well."

Another company official said, "Due to frequent interventions by financial authorities in product sales, insurers have lost their motivation to develop new products. Many hope for a more considerate approach that encourages self-regulation and improvement within the industry, rather than constant external interference."