Relaxation of Social Distancing Leads to Surge in Auto Insurance Loss Ratios, Insurers Face Performance Crisis

Holiday Highway Traffic Jam
Photo by Yonhap News

[Asia Economy Reporter Changhwan Lee] As social distancing measures were eased in April, vehicle traffic increased, leading to a significant rise in automobile insurance loss ratios. There are concerns that the performance of non-life insurance companies, which posted record profits in the first quarter, may decline in the second quarter.

According to the insurance industry on the 22nd, the average loss ratio of 11 non-life insurance companies that completed the preliminary calculation of automobile insurance in April recorded 82.3%, up 9.1 percentage points (p) from the previous month.

Hyundai Marine & Fire Insurance's automobile insurance loss ratio in April was 79.1%, up 6.2 percentage points from the previous month, and Samsung Fire & Marine Insurance rose 10.5 percentage points to 79.0%. Lotte Insurance surged 20 percentage points from 63.1% in March to 83.1% in April.

AXA General Insurance increased 11.0 percentage points from 76.6% to 87.5%, Hanwha General Insurance rose 10.6 percentage points from 67.2% to 77.8%, and Heungkuk Fire & Marine Insurance increased 10.1 percentage points from 76.7% to 86.8%.

The reduction in COVID-19 cases led the government to ease social distancing, which in turn increased vehicle traffic, interpreted as the main reason for the significant rise in automobile insurance loss ratios.

The number of COVID-19 confirmed cases, which reached an all-time high in the first quarter, sharply decreased in April, prompting the government to significantly ease social distancing measures. As social distancing was relaxed, demand for outings and travel also increased substantially.

Consequently, highway traffic volume also increased significantly. The Korea Expressway Corporation stated that highway traffic volume up to April this year increased by more than 30 million vehicles compared to the same period from 2020, when COVID-19 first occurred, through last year, and the trend continues to rise.

With the rise in automobile insurance loss ratios, there are forecasts that the growth in non-life insurers' earnings will also slow. Major non-life insurers such as Samsung Fire & Marine Insurance, Hyundai Marine & Fire Insurance, DB Insurance, KB Insurance, and Meritz Fire & Marine Insurance announced first-quarter results that exceeded expectations due to reduced automobile insurance loss ratios.

However, in the second quarter, it is expected that deteriorating automobile insurance loss ratios will cause performance to fall short of market expectations. Non-life insurers believe that if the accident loss ratio exceeds 80%, the automobile insurance business will turn to a deficit. Insurers expect the loss ratio to rise further this month compared to the previous month.

An insurance industry official said, "As social distancing is eased, automobile insurance loss ratios are rising sharply," adding, "There is a high possibility that second-quarter performance will fall short of expectations."