[Becoming an Insurance Insider] Auto Insurance Expected to Turn a Profit... Will Premiums Decrease?

Surplus After 4 Years Due to COVID-19 Bounce
"Not Enough to Offset Deficits Accumulated Over Several Years"

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On the 18th, when heavy snow fell mainly in the metropolitan area, a child is touching the snow piled on a car at an apartment complex in Bucheon-si, Gyeonggi-do. Photo by Mun Ho-nam munonam@

[Asia Economy Reporter Oh Hyung-gil] Last year, thanks to the COVID-19 ripple effect, automobile insurance succeeded in turning a profit. Attention is focused on whether automobile insurance premiums will be lowered this year. In 2017, when the most recent profit was recorded, automobile insurance premiums were lowered to reduce the burden on consumers. However, although the loss ratio improved last year, the situation is different from back then, and there is reluctance to reduce premiums.

According to the non-life insurance industry on the 23rd, 10 non-life insurers showed a loss ratio (preliminary closing) of 84.7% for automobile insurance last year, down 5 percentage points from 89.7% the previous year.

Samsung Fire & Marine Insurance recorded 81.1%, Hyundai Marine & Fire Insurance 81.2%, KB Insurance 81.5%, Hanwha General Insurance 83.1%, Hana Insurance 86.7%, Lotte Insurance 87.3%, Heungkuk Fire & Marine Insurance 88.7%, and MG Insurance 100.5%.

Meritz Fire & Marine Insurance recorded the lowest loss ratio at 77.5%, down 4.4 percentage points, and DB Insurance recorded 79.6%, down 4.8 percentage points, marking below 80%. The industry considers an appropriate loss ratio that does not incur losses to be between 78% and 80%.

As the loss ratio stabilizes, a profit is expected for the first time in four years. The profit scale is estimated to be about 300 billion KRW. After the final results are compiled next month, full-scale discussions on premium reductions are expected to take place.

However, there are also significant factors for premium increases. The rebound in December last year, when the loss ratio increased compared to the previous month due to the with-COVID-19 policy, is also a burden. In November last year, the loss ratio was 91%, and in December it was 94.4%, an increase of 3.4 percentage points. Looking at the December automobile loss ratios by insurer, Meritz Fire & Marine Insurance was 83.7%, DB Insurance 87%, and Hyundai Marine & Fire Insurance 88.3%. They recorded loss ratios in the 80% range.

The other insurers recorded loss ratios above 90%, including Hanwha General Insurance at 90.1%, Samsung Fire & Marine Insurance 91%, Lotte Insurance 93%, KB Insurance 94%, Hana Insurance 95.7%, Heungkuk Fire & Marine Insurance 97%, and MG Insurance 124%.

In particular, the level is not enough to recover from the long-term deficit, and insurers believe that the loss ratio may rise again starting this year.

Automobile insurance has continued to incur losses every year since 2000 except for 2017. Insurers recorded losses of 1.6445 trillion KRW in 2019 and 379.9 billion KRW in 2020, and the cumulative loss from 2010 to 2020 reached 7.3727 trillion KRW.

An insurance industry official said, "Since automobile repair costs have also increased by 4.5% in three years, the automobile insurance loss ratio is expected to rise this year," adding, "Last year's profit was thanks to the COVID-19 windfall, so this year could be more difficult."