2019 Auto Insurance Loss Ratio Worsens by 5.5%p Due to "Excessive Korean Medicine Treatment Costs"

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[Asia Economy Reporter Ki Ha-young] Last year, the loss ratio of automobile insurance worsened by 5.5 percentage points compared to the previous year due to cost increases such as Korean traditional medicine treatment fees, labor costs, and painting costs. There are calls for efforts to eliminate factors causing premium hikes through proper adjustment of insurance payouts.

The Korea Insurance Development Institute announced the results of its analysis titled "2019 Automobile Insurance Market Trends" on the 26th. According to the institute, last year's automobile insurance loss ratio was 91.4%, deteriorating by 5.5 percentage points from the previous year. This was because, despite some premium increases in the first half of the year, the loss amount for personal liability coverage increased by 15.7% compared to the previous year. The main cause of the increase in personal liability loss amount was the rise in Korean traditional medicine treatment fees. These fees accounted for 46.4% of the total hospital treatment costs and increased by 28.2% compared to the previous year.

In particular, there was a strong preference for Korean traditional medicine treatment among minor injury patients such as those with simple bruises and sprains. The proportion of Korean traditional medicine treatment costs for minor injury patients (injury grades 12-14) has been on the rise. It increased from 51.5% in 2017 to 57.8% in 2018, and soared to 66.5% last year. This is about twice the scale of Western medicine treatment costs. Accordingly, Korean traditional medicine treatment fees are expected to become a burden on automobile insurance in the future.

Last year, the loss amount for property damage coverage also increased by 4.4% compared to the previous year. This was due to an increase in repair cost components such as labor and painting costs. Labor costs rose by 10.9% compared to the previous year, influenced by the Ministry of Land, Infrastructure and Transport's appropriate maintenance fee increase in June 2018. The labor cost per hour for domestic car maintenance increased from the previous range of 21,553 to 24,252 KRW to 25,383 to 34,385 KRW in June 2018. Painting costs also increased by 7.4% compared to the previous year. Parts costs continued their upward trend with a 2.7% increase compared to the previous year.

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Last year, earned premiums increased by 5.1% compared to the previous year, reaching 16.6 trillion KRW. Personal liability coverage increased by 4.5% to 5.7 trillion KRW, and property damage coverage increased by 3.8% to 6.1 trillion KRW. This is analyzed to be due to an increase in the number of insured vehicles, premium adjustments following system changes, and the expansion of coverage scope by policyholders.

In particular, there is a trend of reducing premiums by utilizing online channels and mileage discounts while choosing products with broader coverage to prepare for high-cost accidents. CM channel earned premiums (for individuals) recorded 3 trillion KRW, a 22.1% increase from the previous year, with a market share rising by 3.6 percentage points to 27.2%. As more consumers choose to pay premiums considering their driving distance, the subscription rate for mileage discount riders also increased by 6.4 percentage points compared to the previous year, maintaining growth.

The rate of comprehensive coverage subscription also continued to rise, reaching 74.6% last year, up 1.4 percentage points from the previous year. Additionally, due to the increase in imported cars and concerns about repair costs for expensive counterpart vehicles, more policyholders are switching to higher coverage amounts for property damage. In the subscription status by coverage amount for personal property damage last year, the proportion of those subscribing to coverage of 300 million KRW or more increased by 10.5 percentage points to 58.8% compared to the previous year.

The Korea Insurance Development Institute advised, "The automobile insurance market faces cost increase factors such as rising Korean traditional medicine treatment fees and labor and painting costs, while consumer price sensitivity is increasing. In this situation, continuous efforts are required to eliminate unnecessary and non-urgent premium increase factors through proper adjustment of insurance payouts."

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