Repeated Pressure from Government and Ruling Party to Lower Car Insurance Premiums
Restrictions on Increasing 'Perennial Deficit' Real-Expense Insurance Premiums
'Government Control' Concerns vs Appropriate Intervention for Public Welfare
[Asia Economy Reporter Minwoo Lee] Under strong pressure from government authorities, the insurance industry hastily lowered automobile insurance premiums and reduced the rate of increase for indemnity medical insurance premiums. This was justified by the need to support the public during the high inflation era. Within the industry, there are regrets that the excessive interference?from restraining competition on interest rates for savings-type insurance to the recent pressure to reduce premiums?amounts to overregulation or 'gwanchi.' On the other hand, some argue that considering market and economic conditions, this level of 'control tower' role is inevitable.
According to the insurance industry on the 22nd, Hyundai Marine & Fire Insurance and KB Insurance decided the day before to reduce personal automobile insurance premiums by 2.0%. Meritz Fire & Marine Insurance and Lotte Insurance also announced plans to cut premiums by 2.5% and 2.9%, respectively. Other non-life insurers are expected to follow suit with similar reductions in automobile insurance premiums. The political and financial authorities, emphasizing support for the public, repeatedly pressured the industry, prompting a swift completion of the reductions within the year.
The ruling party and government have emphasized that since the automobile insurance loss ratio has some leeway, it should be reduced magnanimously. The loss ratio is the ratio of insurance claims paid by the insurer to the total premiums received from policyholders. Typically, an automobile insurance loss ratio in the low 80% range is considered the breakeven point. The ruling party and government viewed that since the major non-life insurers’ automobile insurance loss ratios have maintained around 77-78% from the beginning of this year through September, there is room for premium reductions.
However, the loss ratio tends to increase toward the end of the year. According to the industry, the average cumulative loss ratio for five non-life insurers?Samsung Fire & Marine Insurance, Hyundai Marine & Fire Insurance, DB Insurance, KB Insurance, and Meritz Fire & Marine Insurance?up to last month this year is about 79.3%. Several insurers have already exceeded an 80% loss ratio as of last month. Since the automobile repair industry is also demanding higher labor costs, there is an additional burden of rising costs ahead. An industry insider said, "It seems they hurried to complete the reductions within the year because if it passes year-end, insurers might try to narrow the premium cuts citing increased cost burdens and higher loss ratios."
The increase rate for indemnity medical insurance premiums was also limited. The Life Insurance and Non-Life Insurance Associations announced the day before that the average increase rate for indemnity insurance premiums next year will be 8.9%. Since this insurance is used by the majority of the population to the extent it is called the 'second health insurance,' the ruling party and government continued to pressure the industry to magnanimously concede from the initially proposed double-digit increase rates for the sake of public welfare.
The insurance industry expresses regret, saying this is excessive 'gwanchi' (government intervention). Authorities had already warned the industry last month. The Financial Supervisory Service sent official letters urging life insurers to refrain from competing on interest rate hikes for savings-type insurance products. Recently, as interest rate competition intensified among bank deposit products, funds moved from savings insurance products to bank deposits and savings, prompting insurers to raise rates to prevent outflows. The Financial Supervisory Service was concerned that excessive competition for funding could undermine insurers’ soundness. An insurance industry official said, "Lately, we seem to be receiving many official letters and contacts from authorities. We understand the difficult situation, but the bond market is also tight, making funding difficult and frustrating."
However, there are also opinions that it is unreasonable to view government intervention as inherently negative. Since it is a regulated industry, there are many cases where government involvement provides relief. A representative example is the temporary lifting of retirement pension borrowing regulations by financial authorities, fearing that the introduction of the default option system for retirement pensions would cause a massive outflow of retirement pension funds from insurers to securities firms seeking higher returns. Previously, insurers could borrow short-term funds for up to one month within 10% of retirement pension (special account) assets, but this limit has been removed until March next year. Professor Seojiyong of the Department of Business Administration at Sangmyung University emphasized, "It is impossible for authorities not to intervene at all in the financial industry. Since insurers tended to quickly reflect premium increases but were slow to reduce them, it is certainly necessary for financial authorities to intervene and support financial consumers."
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