Government and ruling party pressure leads to car insurance premium cuts... When and how much?

[Asia Economy Reporter Changhwan Lee] Non-life insurance companies have decided to further reduce automobile insurance premiums within half a year to share the economic burden of the public. The reduction rate is expected to be in the low 1% range, similar to that of last May, and the actual beneficiaries among policyholders are expected to see the effects early next year.

According to the insurance industry on the 8th, major non-life insurers such as Samsung Fire & Marine Insurance, Hyundai Marine & Fire Insurance, DB Insurance, KB Insurance, and Meritz Fire & Marine Insurance have decided to reduce automobile insurance premiums and have begun full-scale discussions.

They had already reduced automobile insurance premiums by about 1.2-1.4% in April and May. The decision to reduce premiums again within six months is due to the recent rise in inflation, which has increased the burden on the public.

The political circles and government have consistently demanded reductions in automobile insurance premiums, which affect inflation. In particular, the ruling party, the People Power Party, has repeatedly pressured non-life insurers to lower automobile insurance premiums. On the 6th, Seong Il-jong, the Policy Committee Chairman of the People Power Party, said at the government-party consultative meeting, "We will examine whether the market trends and autonomous functions regarding automobile insurance are operating so that automobile insurance premiums do not become a burden on people's livelihoods."

Financial authorities such as the Financial Services Commission and the Financial Supervisory Service have also continuously promoted the reduction of automobile insurance premiums through system changes and monitoring of loss ratios.

The improvement in automobile insurance loss ratios and continued surpluses since the COVID-19 pandemic have also influenced this decision. The average automobile insurance loss ratio of the top five companies until September this year is 77.9%, making a surplus likely for the second consecutive year following last year. The non-life insurance industry considers the break-even loss ratio for automobile insurance, taking into account operating expenses, to be around 80%.

Baek Seung-wook, head of the Automobile Insurance Department at the Korea Non-Life Insurance Association, explained, "Insurance companies have fully recognized the severity of the current economic situation, including inflation, and decided to reduce automobile insurance premiums to alleviate the economic burden on the public even slightly."

The public is expected to see the effects of the automobile insurance premium reduction early next year. If non-life insurers decide on the reduction rate within this month, it usually takes more than one to two months to complete related procedures such as rate verification by the Insurance Development Institute and notification to policyholders.

The reduction rate is reported to likely be in the low 1% range, similar to the first half of the year. Due to significant flood damage caused by heavy rains and typhoons this year, the loss ratio has increased compared to last year, and increasing the reduction rate could lead the automobile insurance business to operate at a deficit.

Additionally, for small and medium-sized non-life insurers whose automobile insurance business is running at a loss, reducing automobile insurance premiums is expected to be difficult. Small and medium-sized insurers such as MG Insurance have automobile insurance loss ratios exceeding 100%, leaving no room for reduction.

An official from an insurance company said, "The temporary improvement in automobile insurance loss ratios was also influenced by reduced vehicle traffic after COVID-19," adding, "Recently, loss ratios have been rising again, so a large-scale reduction is not easy."

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