A fraud investigation initiated by four South Korean non-life insurers escalated on July 9 when Seoul police raided Jaseng Hospital of Korean Medicine, a prominent traditional medicine provider, over allegations that it improperly collected insurance payouts.

The Financial Crime Investigation Unit of the Seoul Metropolitan Police Agency dispatched investigators to five facilities nationwide, including the hospital’s Gangnam-gu location and the Jaseng Medical Foundation, to execute search warrants on suspected violations of the Special Act on the Prevention of Insurance Fraud, SBS News reported. The complaints were filed by four insurers, including Samsung Fire & Marine Insurance and Hyundai Marine & Fire Insurance, which alleged the hospital indiscriminately prescribed herbal medicine to traffic accident patients, and the case was assigned to the police unit in April.

Allegations and the hospital's response

Police allege that Jaseng supplied traffic accident patients with herbal medicine that had been prepared in advance at factories while presenting it as individually prescribed medication, collecting payouts that The Asia Business Daily reported as totalling hundreds of billions of won and SBS News reported as tens of billions of won. Under a Ministry of Land, Infrastructure and Transport notice, herbal medicine for traffic accident patients must be prescribed individually based on each patient’s symptoms and condition, The Asia Business Daily reported.

The complaints name 23 individuals, including the chairman of the Jaseng Medical Foundation, the directors of 21 Jaseng hospital branches across the country, and the representative of an off-site herbal medicine preparation centre, according to SBS News. Investigators plan to analyse seized prescription records to determine whether an organized attempt to siphon insurance funds took place. Jaseng denied the allegations in a statement issued the same day, saying it prescribes herbal medicine individually based on each patient’s symptoms, constitution, medical history, and diagnosis, and that similar complaints from insurers had previously been dismissed by investigators, according to Korean-language reports by the Seoul Economic Daily.

Raid falls within a national enforcement campaign

The investigation comes amid a nine-month special crackdown on insurance fraud that the National Police Agency is running from Feb. 2 through Oct. 31, 2026, targeting organized car accident schemes and illegal medical institutions, Insurance Business Asia reported. “Insurance fraud is a crime that undermines trust in the insurance system, which serves as a social safety net, and causes losses in insurance payouts, ultimately harming honest policyholders,” the agency said when launching the campaign. Medical providers are drawing scrutiny from health authorities as well. The Ministry of Health and Welfare has announced a crackdown on cancer care and Korean medicine hospitals billing non-insured treatments at 4 million to 9 million won per month, Insurance Business Asia reported in June.

Fraud at a record as claims costs pressure premiums

Detected insurance fraud in South Korea’s private sector reached a record 1.1571 trillion won (about US$770 million) last year, up 0.6% from the previous year, according to Financial Services Commission (FSC) figures reported by The Chosun Daily and The Asia Business Daily. Including undetected cases, total annual fraud is estimated at about 9 trillion won (about US$6 billion). Long-term non-life insurance accounted for 44.7% of detected fraud, followed by auto insurance at 22.4%, life insurance at 21.8%, and general non-life insurance at 11.2%.

An FSC official said: “Such leakage of insurance payouts leads to higher premiums, and when insurance fraud involves claims for health insurance benefits, concerns rise about the depletion of the health insurance fund.” The fraud burden coincides with broader medical cost pressure. Premiums for first- through fourth-generation indemnity policies in Korea rose an average of 7.8% this year, and Korea’s projected gross medical trend for 2026 stands at 13.5%, above the global figure of 10.3%, according to WTW. Asia-Pacific insurers named fraud, waste, and abuse among their top cost drivers.

Regulators to counter AI-enabled fraud with AI

Regulators have also flagged fraud involving generative AI. In one case reported by The Chosun Daily, a man in his 20s from Busan used AI to alter hospital admission documents and collected 150 million won (about US$100,000) from 11 insurers. An FSC source explained: “While image manipulation via Photoshop can be detected through font or spacing irregularities, these methods do not work on AI-generated images.”

In response, the FSC launched a task force on June 4 to design an AI-based fraud prevention platform, linking systems from the Korea Credit Information Services, the Insurance Development Institute, and individual insurers. The commission plans to finalize the plan by September, with legal amendments and platform upgrades to follow from October, The Asia Business Daily reported. Kim Jinhong, Director General of the FSC’s Financial Industry Bureau, said the system “will enable comprehensive response measures such as pre-emptive prevention, real-time detection, and post-fraud action, thereby reducing insurance fraud across the board.”