'Already 70 Billion' Record-Breaking Car Flood Damage... Insurers' Loss Ratio 'Warning Light' (Comprehensive)

Third Largest Damage Scale in History Following 2011 and 2003

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

[Asia Economy Reporter Oh Hyung-gil] This summer, the scale of car flood damage caused by the longest rainy season and heavy downpours in history has exceeded 70 billion KRW. In particular, as the rainy front stagnates, additional rain is forecast until mid-month, raising concerns that the damage scale will increase further. The non-life insurance industry predicts that considering typhoon damage continuing until October even after the rainy season ends, this year's flood-damaged car losses could surpass the record 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 is underway.

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

The problem is that heavy rain is forecast until mid-month. If additional recovery work proceeds, the scale of vehicle flood damage will inevitably increase further.

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

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-damaged car losses will hit an all-time high."

[Image source=Yonhap News]

Comprehensive Car Insurance Coverage Mostly Available Without Premium Surcharge

Insurance companies expect that as flood damage compensation work progresses, the loss ratio of auto insurance will also worsen. When vehicles are flooded and damaged due to floods, insurance companies compensate for vehicle damage under the comprehensive car insurance coverage. 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 was 89.3%. This is a slight improvement compared to the previous month (June) average of 91.3%. However, it is still significantly above the appropriate loss ratio range of 78-80% that insurers usually manage. The loss ratios of four major insurers ranged from 84.8% to 86.5%, recording high levels.

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

In July 2011, flood damage to vehicles amounted to about 40 billion KRW in one month, causing the auto insurance loss ratio for that month to rise by about 4 percentage points. For small and medium-sized insurers, the increase in loss ratio due to flood damage is relatively large, and the loss ratio could exceed 100%.

There is also interest in whether insurers will raise premiums due to the increase in auto insurance loss ratios. The market sentiment is that it will be difficult to decide on a premium increase 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 development of the situation."

Meanwhile, most flood-damaged vehicles are covered without premium surcharges if they have comprehensive car insurance. However, if the sunroof or windows were left open, or if flooding occurred while driving in prohibited areas, compensation is not available. Compensation for items inside the vehicle is also excluded. Since over 90% of flood-damaged 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.