The Lowest Auto Insurance Loss Ratio in History... How Long Will It Last?

79.1% in the First Half... Stable Trend Expected in the Second Half
Accumulated Variables Including Maintenance Labor Costs Driving Insurance Premium Increases

[Image source=Yonhap News]

[Asia Economy Reporter Oh Hyung-gil] The loss ratio for automobile insurance is currently at its lowest level in the past 10 years. It is even lower than the level seen in 2017 when insurers consecutively reduced automobile insurance premiums.

Although the transition to the phased recovery from COVID-19, known as ‘with Corona,’ is expected by the end of this month, the prevailing view is that it will not immediately cause a sharp increase in the auto insurance loss ratio. The property and casualty insurance industry is closely watching how long this long-awaited stability in the loss ratio will continue.

According to the Korea Insurance Development Institute on the 7th, the loss ratio of 12 property and casualty insurers selling automobile insurance recorded 79.1% in the first half of this year. This is 6.6 percentage points lower than 85.7% at the end of last year.

Among the gross premiums written in the first half, the earned premiums attributable to the current fiscal year reached 9.2462 trillion KRW, while the incurred losses amounted to only 7.3165 trillion KRW. Although this is before deducting operating expenses, it means that automobile insurance generated a surplus of about 2 trillion KRW.

Major insurers such as Samsung Fire & Marine Insurance, DB Insurance, Hyundai Marine & Fire Insurance, and KB Insurance recorded auto insurance loss ratios (preliminary closing) at around 77-78% through August, indicating that the stability has continued into the second half of the year.

Over the past decade, the auto insurance loss ratio fell to 80.9% in 2017 but fluctuated up to 92.9% in 2019. This year is the only one maintaining the 70% range. If damages caused by this winter’s abnormal weather are not significant, it is expected to break the all-time lowest record.

However, factors driving automobile insurance premium increases continue to accumulate. Recently, the insurance industry reached a final agreement with the automobile repair industry to raise the hourly labor cost for auto repairs by 4.5%, marking the first increase in repair fees in three years.

Due to inflation, parts prices are also rising, and an agreement on increasing automobile painting fees has yet to be reached. Painting fees account for about 28% of total automobile insurance repair costs, second only to parts costs (48%), and have a significant impact on insurance payouts. The repair industry is reportedly demanding a 10% increase in painting material costs.

A property and casualty insurance industry official said, "The increase in repair fees as well as painting fees will definitely affect the cost structure of automobile insurance," adding, "Discussions on the realistic adjustment of painting fees may be prolonged until next year through market surveys and other means."

With the government announcing plans to disclose automobile insurance cost indices starting next year, there is interest in how this will affect the automobile insurance premium determination process. Despite the cost disclosure, consumer sentiment may arise that insurers should lower rather than raise premiums.

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