Amid Surging Mobility... Insurers Growing Anxious Over Potential Rise in Loss Ratios

On the 30th of last month, during the Lunar New Year holiday, the downward lane of the Gyeongbu Expressway (right) was viewed from Jamwon IC in Seocho-gu, Seoul / Photo by Hyunmin Kim kimhyun81@

[Asia Economy Reporter Changhwan Lee] Despite the rapid spread of COVID-19, the volume of travel during this year's Lunar New Year holiday has significantly increased, leading to forecasts that the loss ratio of automobile insurance will rise. As financial authorities are demanding a reduction in automobile insurance premiums, the possibility of an increase in the loss ratio is growing, raising concerns about the deterioration of performance for non-life insurance companies.

According to the Korea Expressway Corporation on the 3rd, the nationwide traffic volume on Lunar New Year's Day this year is estimated to be about 4.95 million vehicles, a 15.3% increase compared to 4.29 million vehicles last year. The Ministry of Land, Infrastructure and Transport and the Korea Transport Institute also predicted that the average daily travel volume during this year's Lunar New Year holiday would increase by 17.4% to 4.8 million people compared to last year.

As travel volume increases, automobile accidents rise, leading to an increase in automobile insurance loss ratios. This is also why, after the government implemented the With COVID-19 (gradual return to normal life) policy in the second half of last year, travel volume and automobile accidents increased nationwide, and the loss ratios of major non-life insurers rose.

As of November last year, when the gradual return to normal life was implemented, the average daily number of automobile accidents in Korea was 21,485, an increase of 1,579 cases from 19,906 cases in the previous month. Samsung Fire & Marine Insurance, the industry leader, saw its automobile insurance loss ratio in the fourth quarter of last year rise significantly to about 86% from 79.5% in the previous quarter.

During the same period, the automobile insurance loss ratios of major non-life insurers such as KB Insurance, Hyundai Marine & Fire Insurance, and DB Insurance also rose to similar levels. In some cases, the loss ratio of certain insurers is understood to have reached 100%.

Considering operating expenses, the break-even loss ratio for automobile insurance is around 80%, so this indicates a shift to a loss-making structure. Given the trend of increased travel volume during the Lunar New Year holiday, the automobile insurance loss ratio for the first quarter of this year is also expected to exceed 80%. The financial authorities' demand to lower automobile insurance premiums amid rising loss ratios is also a burden for insurers.

Last year, as travel volume decreased due to COVID-19, non-life insurers posted a surplus in automobile insurance, prompting financial authorities to pressure for premium reductions. Since automobile insurance is mandatory, the opinions of financial authorities have a significant impact. However, the insurance industry points out that automobile insurance only recorded a small surplus following three consecutive years of deficits, and there is a possibility of returning to a deficit this year, making them reluctant to reduce premiums.

Automobile insurance recorded a surplus of 25.6 billion KRW in 2017 but turned to a deficit of 723.7 billion KRW in 2018, and the deficit surged to 1.6445 trillion KRW in 2019. In 2020, the deficit was reduced to 379.9 billion KRW due to premium increases. Last year, it is estimated that there was a surplus of about 280 billion KRW.

A representative from the non-life insurance industry said, "Last year's surplus in automobile insurance is largely attributed to the impact of COVID-19," adding, "If the loss ratio rises again this year, it may be difficult to post a surplus, and a reduction in premium rates would be a significant burden on the industry."

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