'Corona Reflection Effect' Auto Insurance... Loss Ratio Lower Than 2017 When Premiums Were Reduced (Comprehensive)

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

[Asia Economy Reporter Oh Hyung-gil] The loss ratio of automobile insurance is currently recording the lowest level in the past 10 years. It is even lower than in 2017, when insurance companies consecutively reduced automobile insurance premiums.

Although the transition to the phased recovery of daily life 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 paying close attention to how long the recently stabilized 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 written premiums in the first half, the earned premiums belonging 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 alone 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, maintaining stability in the second half of the year as well.

Over the past 10 years, the auto insurance loss ratio dropped to 80.9% in 2017 but surged to 92.9% in 2019 after premium cuts, experiencing sharp fluctuations. As a result, insurers had to raise premiums in 2019 and 2020.

This year is the only year maintaining the loss ratio in the 70% range. If damages caused by abnormal weather this winter are not significant, it is expected to break the record for the lowest loss ratio ever.

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 automobile repairs by 4.5%, marking the first increase in repair fees in three years.

Due to inflation, parts prices are also rising, and the increase in automobile painting fees has yet to be agreed upon. 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.

An official from the property and casualty insurance industry said, "The increase in repair fees, as well as painting fees, will definitely affect the cost increase of automobile insurance," adding, "The issue of adjusting painting fees may be prolonged until next year through market research and other discussions."

Interest also lies in how the government’s announcement of the automobile insurance cost index will affect the premium determination process. Starting next year, the government plans to publish a cost index based on statistics by selecting cost factors that significantly impact automobile insurance payouts, such as medical fees, parts costs, repair labor costs, and painting fees. Despite this cost disclosure, consumer sentiment may arise that insurance companies should lower rather than raise premiums.

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