Key regulatory uncertainty removed for Korean insurers, says Moody's

Analysis on how the extension in the coverage of the national health insurance service in Korea will affect insurers is deemed credit positive, says Moody’s Investors Service

The Financial Services Commission (FSC) and the Ministry of Health and Welfare results of an independent analysis on the extension in the coverage of the national health insurance service in Korea, a policy often referred to as "Mooncare", suggest insurers will not be worse off.

According to Moody's Investors Service, analysis is credit positive for Korean insurers because they suggest that the extension of Mooncare coverage will increase profitability by lowering claims on overall indemnity products while raising the premium on old indemnity products in 2019. These findings also remove a key regulatory uncertainty insurers long faced in the pricing for premium renewal for 2019, says Moody's.

The government plans to spend US$27.1 billion to extend the medical coverage rate from currently 62-65% to 70% by 2022. Some of the policies have already been phased-in, including wider public coverage on hospital room bills, child hospitalization, ultrasound treatment and others.

Based on the analysis, insurers will generally benefit from a lower loss ratio because the extended coverage under Mooncare will transfer more medical coverage to the public healthcare system and lower claims on their medical indemnity products. Insurers will also benefit from the new guidance on re-pricing of medical indemnity products.

According to Moody's, for old indemnity products prior to April 2017, with little or no co-payment by policyholders, the FSC advises a premium increase of 8%-12% for products launched before September 2009 and 6%-12% for products launched between September 2009 and April 2017. This will directly improve the loss ratio on these products for insurers that suffer from a high loss ratio. This decision suggests that the FSC acknowledges the pressing needs for premium hikes by insurers that have been incurring losses from these old indemnity products with low underwriting quality.

For new indemnity products – those sold after April 2017 with 30% co-payment by policyholders – the FSC advises a premium decline of 8.6% to reflect lower expected claims on these policies. Offsetting the benefit from lower expected claims means the impact will be minimal because the portion of new indemnity policies are much smaller compared with old policies in the product mix.

Moody's Investors Service believes the demand for private medical insurance will remain solid in Korea.

"Although it is possible the extended coverage of Mooncare could reduce the demand for the private medical insurance products in the long-run, we believe the impact would be limited because there are still 30% uncovered medical expenses that fall under private insurance coverage after the expansion plan of Mooncare fully rolls out," says Young Kim, analyst, Financial Institutions Group, Moody's Investors Service.

However, Moody's did suggest medical indemnity products are still a burden on insurers' profitability.