Second Half-Year Preview of Auto Insurance Improvements... Property Insurance Industry 'Maintains Composure'

Profit from COVID-19 Boosts and Declining Loss Ratios
Record-High First Half Performance Expectations Rise
Pressure Mounts for 'Insurance Premium Reduction' Requests

[Asia Economy Reporter Oh Hyung-gil] Non-life insurance companies have welcomed the prospect of turning a profit in auto insurance, which had been in the red for years since COVID-19, along with the positive impact of institutional improvement measures to be implemented from the second half of the year. Although record-breaking performance is expected in the first half of the year, there is a sense that they cannot be entirely optimistic. The insurers are inevitably conscious of the demand to lower premiums that have been raised continuously for years.

According to the insurance industry on the 3rd, from next month, drivers caught speeding in school zones (Seukuljon) will face increased insurance premiums. From next year, insurance premiums will also rise if the obligation to protect pedestrians at crosswalks is violated.

Non-life insurers say that while the impact of the new auto insurance premium surcharge system reform on improving the loss ratio is not significant, the positive effects of premium increases are clear.

An official from a non-life insurer said, "Since the implementation of the Min-sik Act, cases of speeding violations in school zones have significantly decreased, so there will not be many cases of premium surcharges," adding, "Even if only a few, if premiums increase, it helps in managing the loss ratio."

This month, measures to sanction excessive medical treatment for minor car accident injuries are also expected to be announced. Medical expenses paid to minor injury patients with injury grades 12, 13, and 14 surged from 345.5 billion KRW in 2014 to nearly 1 trillion KRW in 2020.

The upcoming measures are expected to include mandatory submission of medical certificates for treatments lasting more than three weeks and provisions for treatment costs for minor injuries to be borne according to accident fault, which is anticipated to curb excessive medical treatment.

Additionally, the Board of Audit and Inspection has delivered audit results to financial authorities, urging improvements to the premium calculation system that favors imported cars, and improvement plans are expected to follow.

Currently, auto insurance premiums are categorized by vehicle size?small, medium, large?regardless of whether the car is domestic or imported. However, the repair cost per accident for large domestic cars is 1.29 million KRW, and for small cars, 1.02 million KRW, whereas imported cars cost a whopping 2.89 million KRW, more than twice that of domestic cars.

When the Board of Audit and Inspection applied a 3-23% surcharge on property damage liability premiums for 137 high repair cost vehicle models, it was analyzed that high repair cost vehicles saw an average premium increase of 15.3%, while regular vehicles experienced an average premium decrease of 1.9%.

If the corruption related to high-cost imported cars is reflected in property damage liability premiums as pointed out by the Board of Audit and Inspection, it is expected to reduce the loss ratio of auto insurance.

For non-life insurers, who have been struggling with deficits in auto insurance, these institutional changes are like "picking up the nose without using hands." However, the industry is cautious, sensing that raising auto insurance premiums may become more difficult and that there could be public calls for premium reductions, leading them to watch the authorities closely.

The combined auto insurance loss ratios of the four major non-life insurers?Samsung Fire & Marine Insurance, Hyundai Marine & Fire Insurance, DB Insurance, and KB Insurance?recorded 78-79% in the first half of the year. In 2017, when the loss ratio dropped to 73%, insurers decided to lower premiums.

An industry official said, "After lowering premiums in 2017, deficits reached 700 billion KRW in 2018 and 1.6 trillion KRW in 2019," adding, "With the loss ratio expected to rise after COVID-19, it is risky to hastily lower premiums based only on the current situation."

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