Will Auto Insurance Premiums Rise in the Second Half of the Year? Emerging Variables

Loss ratio improved due to COVID-19 impact, but deficit remains

[Asia Economy Reporter Oh Hyung-gil] Although the loss ratio of automobile insurance has stabilized amid the COVID-19 pandemic, the possibility of premium increases remains unabated.

While the loss ratio has improved, the fact that insurers are still operating at a deficit serves as the basis for this. Additionally, if the repair labor rates are raised in reality, it is expected that insurance premiums will increase.

However, non-life insurance companies achieved record-breaking results in the first quarter, and they are burdened by criticism that raising premiums would directly pass the cost burden onto consumers.

According to the Financial Supervisory Service and the insurance industry on the 22nd, the automobile insurance loss ratio has been approaching a stabilization level since the COVID-19 outbreak. Last year, the combined operating loss of automobile insurance for 12 non-life insurers was 379.9 billion KRW, a significant improvement from the previous year's loss of 1.6445 trillion KRW.

In particular, from January to April this year, the automobile insurance loss ratios were 79.7% for Samsung Fire & Marine Insurance, 80.3% for Hyundai Marine & Fire Insurance, 80.3% for DB Insurance, and 80.2% for KB Insurance. This is analyzed to be due to reduced outings and decreased hospital visits caused by social distancing, leading to fewer insurance claims.

Since all these figures fall within the industry's estimated appropriate loss ratio range of 78-80%, the grounds for premium increases have become weak.

However, some small and medium-sized non-life insurers have recently implemented premium hikes, leaving room for large insurers to consider raising premiums as well.

Carrot Insurance raised its per-mile automobile insurance premiums by an average of 6.5% as of the 20th. On the 16th of last month, MG Insurance increased personal automobile insurance premiums by an average of 2%, and on the 10th of this month, Lotte Insurance raised premiums by an average of 2.1%.

Small and medium-sized insurers have not seen improvements in their loss ratios compared to large insurers. MG Insurance recorded a loss ratio of 107.7% last year, and Lotte Insurance also exceeded the appropriate loss ratio with a 90.9% automobile insurance loss ratio last year.

A chronic issue with automobile insurance loss ratios is the excessive medical treatment costs due to over-treatment of minor injury patients from car accidents. According to the Korea Insurance Research Institute, medical expenses paid to minor injury patients with injury grades 12-14 increased from 345.5 billion KRW in 2014 to 1 trillion KRW in 2020.

It is pointed out that unnecessary insurance payouts caused by over-treatment of minor injury patients act as a factor for premium increases for the majority of good-faith policyholders.

In response, financial authorities are considering introducing a mandatory submission of medical certificates for minor injury patients. If minor injury patients receive treatment exceeding the usual three-week period, medical institutions would be required to submit a medical certificate.

Repair Industry "Repair Labor Rates Must Increase"... New Variable Emerges

Moreover, a new variable has recently emerged. The automobile repair industry is arguing for an increase in repair labor rates during discussions with the non-life insurance industry regarding automobile repair labor costs.

Repair labor rates refer to the hourly labor fees paid by insurers to repair shops when repairing accident vehicles.

Currently, the Automobile Insurance Repair Council is operating to determine the repair labor rates. Established under the revised Automobile Damage Compensation Guarantee Act implemented in October last year, it consists of representatives from the insurance industry, repair industry, Ministry of Land, Infrastructure and Transport, Financial Services Commission, and consumer groups. The automobile repair industry is reportedly demanding an 8.2% increase in repair charges.

A representative from the non-life insurance industry said, "It is premature to discuss whether to raise premiums in the second half of the year," but added, "As the COVID-19 situation improves, we need to consider various variables such as the loss ratio returning to previous levels or an increase in repair charges."

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