'Already 70 Billion' Record-Breaking Car Flood Damage... Insurers' Loss Ratios on 'Warning'

The Third Largest Damage Scale in History Following 2011 and 2003

Negative Impact on Auto Insurance Loss Ratio... Insurers "Closely Monitoring Losses"

On the 11th, during the ongoing rainy season, a vehicle is driving with its headlights on in Taepyeong-ro, Jung-gu, Seoul. Photo by Jinhyung Kang aymsdream@

[Asia Economy Reporter Oh Hyung-gil] This summer, the scale of car flood damage due to the longest rainy season and heavy rainfalls on record has exceeded 70 billion KRW. In particular, with the stationary rainy front predicting additional rain until mid-month, concerns are growing that the damage scale will increase further. The non-life insurance industry forecasts that considering typhoon damage continuing until October even after the rainy season ends, this year's flood damage to vehicles could surpass the all-time high of 100 billion KRW.

According to the General Insurance Association on the 11th, the total number of reported car flood damage cases received by 12 domestic non-life insurers currently selling auto insurance from the 9th of last month until 9 a.m. on the 10th of this month reached 7,113. Although the heavy rain started last month, the number of reports has surged this month as recovery work has been underway.

The industry estimates that the damage amount caused by flooding alone will reach 71.1 billion KRW. This is the third-largest damage scale in history, following the heavy rain in 2011 (damage amount 99.3 billion KRW) and Typhoon Maemi in 2003 (91.1 billion KRW).

The problem is that heavy rain is forecasted until mid-month. As additional recovery work proceeds, the scale of vehicle flood damage is inevitably expected to increase further.

The increase in high-priced imported vehicles is also cited as one of the factors contributing to the rise in damage amounts. As the number of expensive vehicles increases, the insurance payouts tend to rise accordingly.

An official from an insurance company said, "Even after the rainy season ends, typhoons usually affect until October, so there is a high possibility that this year's flood damage amount will hit a record high."

Comprehensive Car Insurance Subscription, Most Damages Covered Without Premium Surcharge

Insurance companies expect that as flood damage compensation work progresses, the loss ratio of auto insurance will worsen. When vehicles are flooded and damaged due to floods, insurance companies compensate for vehicle damage under the comprehensive car damage coverage of auto insurance. In particular, this heavy rain is seen as a factor that will raise the auto insurance loss ratio, which had been relatively stable since the COVID-19 pandemic.

As of the preliminary closing in July, the average auto insurance loss ratio of nine insurers recorded 89.3%. This is a slight improvement compared to the previous month (June) average of 91.3%. However, it is still significantly higher than the 78-80% level that insurers usually manage as an appropriate loss ratio.

As the social atmosphere of refraining from going out due to the COVID-19 pandemic gradually eases, the loss ratio has been rising since May and June. With the addition of vehicle flood damage, it is expected that the loss ratio will increase significantly after August.

Previously, in July 2011, vehicle flood damage amounting to about 40 billion KRW occurred within a month, causing the auto insurance loss ratio for that month to rise by about 4 percentage points.

There is also interest in whether insurance companies will raise premiums due to the increase in auto insurance loss ratios. The market sentiment is that it will be difficult to decide on premium hikes within this year.

An industry official said, "Since premiums were raised earlier this year, it would be burdensome to increase them again within the year," adding, "We need to monitor the situation of damage occurrence and the trend of the situation."

Meanwhile, vehicles that have been flooded are mostly covered without premium surcharges if comprehensive car insurance is subscribed. However, if the sunroof or windows were left open, or if flooding occurred while driving in prohibited areas, compensation is not possible. Compensation for items inside the vehicle is also excluded. Since over 90% of flooded vehicles reported to insurance are scrapped due to safety or repair cost issues, compensation is limited to the vehicle's value at the time of the accident.

[Image source=Yonhap News]