Korea’s new act on insurance fraud prevention strengthens punishment

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South Korea’s National Assembly on Thursday passed an amendment to the Special Act on Prevention of Insurance Fraud, enhancing the efficiency of financial and investigative authorities and insurance companies in combating insurance fraud that has become increasingly organized.

Under the new law, penalties for those who broker, entice, solicit, or advertise insurance fraud, will be at the same level of punishment as the fraudsters themselves – up to 10 years in prison or a fine of up to 50 million won ($37,427).

Previously, only those who actually committed fraud or enabled a third party to commit fraud were punishable.

The amendment also allows for the imposition of fines up to the amount of illegal gains in addition to prison sentences for insurance fraudsters.

The law strengthens the financial authorities’ powers in combating insurance fraud, allowing the Financial Services Commission to request information from administrative agencies, insurance companies, and telecommunications operators to aid in fraud prevention. Non-compliance with these requests can now result in a fine of up to 5 million won, enhancing the law’s effectiveness.

The law also introduces remedies for victims of insurance fraud.

There were many cases where insurance fraud occurred in an automobile accident and the affected driver did not know about it, but the new law requires insurance companies to notify the affected driver about the incident and refund the increased premium.

The amendment, however, omitted provisions for aggravated punishment for insiders in the insurance industry involved in fraud as well as mandatory reimbursement of insurance payouts upon a guilty verdict for fraudsters.

According to the Financial Supervisory Service, the amount of detected insurance fraud topped 1 trillion won for the first time in 2022, reaching 1.08 trillion won, with over 100,000 individuals implicated.