Dispute Committee: "Follow-up Tests and Clinical Trial Hospitalization Not Subject to Disclosure"... Orders Insurance Payouts for Pre-existing Condition Policies

Clarification of Pre-Contract Disclosure Requirements for Simplified Underwritten Insurance

The Financial Supervisory Service's Dispute Settlement Committee has determined that hospitalization for the purpose of clinical trials—not for follow-up observation, examination, or treatment purposes—is not a subject of disclosure prior to signing a simplified underwritten insurance (insurance for those with pre-existing conditions) contract. This decision is expected to clarify the scope of frequently disputed disclosure items, such as 'additional testing' and 'hospitalization due to illness,' thereby helping to prevent similar disputes in the future.

According to the Financial Supervisory Service on July 27, the committee issued such a mediation decision on July 24 regarding two disputes about potential violations of the pre-contractual disclosure obligation in simplified underwritten insurance. The Dispute Settlement Committee arbitrates conflicts raised by financial consumers against financial institutions.

Simplified underwritten insurance products reduce the number of disclosure requirements compared to regular insurance policies, allowing people with chronic conditions such as hypertension and diabetes to obtain coverage. However, insurance premiums are higher than those for standard insurance because of the reduced disclosure and higher risk associated with applicants with pre-existing conditions. Applicants are still required to answer the questions specified on the application form truthfully. Violation of this requirement may result in policy cancellation or denial of insurance benefits.

According to the committee, the first case centered on the scope of additional examination. Applicant A enrolled in a simplified underwritten insurance policy in April 2023 and was later diagnosed with myelodysplastic syndrome (a type of blood cancer) the following year, for which he claimed a critical illness payout. The insurer asserted that A had been advised by doctors to have a blood test two months later (one month prior to enrollment), which, according to the policy, constitutes a recommendation for additional testing within three months of enrollment and should have been disclosed. The insurer canceled the contract and denied the claim, stating that this omission violated the disclosure obligation.

However, the committee judged that the blood test was for follow-up observation of platelet levels and not for investigating an abnormal finding. A had also been informed that no abnormalities were detected in the bone marrow examination. According to court precedents and the Financial Supervisory Service interpretation, an additional test is only one conducted after an earlier abnormal result, for the purpose of achieving a more precise diagnosis. Routine examinations and follow-up observations are not included in this definition. Accordingly, the committee ruled that the insurer must pay the insurance benefit.

In the second case, the issue was whether hospitalization for participation in a clinical trial constituted hospitalization due to illness. Applicant B applied for simplified underwritten insurance in March 2022 and later, in 2024, was hospitalized and claimed daily inpatient benefit for using a caregiver. The insurer asserted that, prior to enrollment, B had been hospitalized overnight twice (in 2019 and 2021) to participate in clinical trials of new drugs. The insurer argued that these instances fell under the category of hospitalization due to illness within three years prior to enrollment and should have been disclosed. Non-disclosure was the basis for cancellation of the contract and denial of the claim.

However, the committee determined that these hospitalizations were for the purpose of conducting and monitoring a clinical trial, not for treatment of an illness. B's health condition at the time also allowed for outpatient care using regular medication. Furthermore, the committee noted that all clinical trial participants received the same medication and blood tests, supporting the view that these were not hospitalizations for individualized treatment. Based on these considerations, the insurer was ordered to pay the claimed benefit.

An official from the Dispute Settlement Committee stated, "This mediation clarifies the meanings of 'additional examination' and 'hospitalization due to illness' within the disclosure obligations of simplified underwritten insurance—issues that frequently cause disputes. We intend to use this result to encourage swift and rational insurance payments by insurers, and we will continue to convene the committee actively in order to strengthen protection for financial consumers."

This settlement takes effect if both parties accept the proposal within 20 days of notification and, under the Act on the Protection of Financial Consumers, carries the same legal force as a court mediation.

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