Temporary Hold on Car Insurance Premium Hike... Authorities' Pressure Leads to Cautious Approach Amid Soaring Deficits (Comprehensive)

Temporarily Halted at Authorities' Request, but Insurers Say "No Choice Due to Worsening Loss Ratio"
Rising Parts Costs, Which Account for Half of Repair Expenses, and Surge in Oriental Medicine Fees Including Acupuncture Treatment

[Asia Economy Reporter Oh Hyung-gil] The planned increase in car insurance premiums, initially scheduled for the end of this month, has been put on hold. After the financial authorities requested a suspension, the property and casualty insurance companies, who had been hesitant, ultimately decided to temporarily halt the increase. The property and casualty insurance industry, which is complaining about deteriorating profitability due to soaring loss ratios (the ratio of claims paid to premiums received), insists that raising premiums is the only solution.

The industry argues that due to the complex interests surrounding car insurance, raising premiums is inevitable to reduce the loss ratio. However, there are also criticisms that the cost burden is being passed directly onto consumers, especially since premiums were raised twice last year.

According to the industry on the 10th, KB Insurance recently prepared to raise car insurance premiums but has since stopped the process.

This means the timing of the increase has been temporarily delayed at the request of the authorities. Other insurers are also closely monitoring the situation and postponing premium hikes.

While aware of criticism from financial authorities and the market, insurers maintain that there is no alternative to raising premiums. An executive from a major insurer lamented, "If there were a way to reduce the loss ratio without raising car insurance premiums, how great would that be?" He added, "Rising car repair costs and medical expenses affect the car insurance loss ratio, so it cannot be helped."

In fact, the main causes of repair cost increases are parts prices and labor costs. In 2018, of the 5.6761 trillion KRW spent on repairs in car insurance, parts accounted for nearly 50%, but lowering these costs is practically impossible.

The government has introduced the Certified Alternative Parts System since 2015 and encouraged the use of alternative parts to reduce parts prices. Insurers have also offered special contracts that refund premiums if alternative parts are used during repairs.

However, the use of alternative parts has stalled due to disagreements with the automobile and parts industries. The underlying issue is that automakers register design rights for parts and maintain a monopolistic distribution structure.

During the 19th National Assembly, Min Byung-doo of the Democratic Party proposed amendments to the Automobile Alternative Parts Act and the Design Protection Act to promote alternative parts, but these efforts ultimately failed. Negative consumer perceptions of alternative parts also play a role.

An insurance industry official said, "There is a strong perception that genuine parts from the car manufacturer must be used when replacing parts," and added, "Which consumer would welcome a repair shop using alternative parts?" In the U.S., the introduction of the Certified Alternative Parts System led to alternative parts being sold at up to about 75% of the price of genuine parts, and the price of genuine parts also dropped by 30%.

Medical expenses under car insurance are also a factor increasing the loss ratio. In particular, controversy continues over excessive treatment of car insurance patients by Korean medicine clinics and Korean medicine hospitals (the Korean medicine community).

In the first half of last year, of the 1.0446 trillion KRW in car insurance medical expenses, 428.8 billion KRW (41%) was spent on Korean medicine treatment. This is about double the 23% share in 2015. The insurance industry believes that excessive treatments such as Chuna therapy and herbal medicine at Korean medicine clinics have increased, causing a sharp rise in Korean medicine medical expenses under car insurance.

Korean medicine medical expenses nearly doubled from 357.6 billion KRW in 2015 to 713.9 billion KRW in 2018, while Western medicine medical expenses increased by only 70 billion KRW, from 1.1981 trillion KRW to 1.2623 trillion KRW, showing a significant difference.

The Korean medicine community counters that Korean medicine treatment, which has strengths in treating aftereffects of traffic accidents and non-surgical treatments, is gaining recognition from consumers. They argue that the psychology of accident victims, who believe they should receive proper treatment even for minor traffic accidents, also plays a role.

An insurance industry official pointed out, "Not all treatments received after an accident can be seen as excessive or moral hazard," but added, "If medical expenses increase, ultimately the other policyholders have to bear the burden."

This content was produced with the assistance of AI translation services.