Rationalizing Car Insurance Discounts and Surcharges Based on Previous Driving Experience
Recognition of Long-Term Rental Car Insurance History
In the future, drivers who have stopped driving for a certain period and then resume driving will receive discounts or surcharges on their car insurance premiums based on their previous driving history when re-enrolling in car insurance.
On the 2nd, the Financial Services Commission and the Financial Supervisory Service announced improvements to the criteria for recognizing car insurance experience. Car insurance is a mandatory nationwide insurance renewed annually, with over 25 million subscribers, making it a representative national insurance product. Since car insurance premiums significantly impact the daily lives of citizens, including being part of the consumer price index, it is considered very important that premiums are fairly charged based on the driver's (insured's) accident history and driving experience.
Car insurance operates a "good discount and bad surcharge rating system," which increases premiums for drivers with accident histories and discounts for those without accidents, as well as a "insurance subscription experience rate system" that offers discounts based on driving experience.
However, if a driver has not been enrolled in car insurance for more than three years, resulting in a break in their driving history, their good rating earned from long-term accident-free driving is reset to the basic rating, causing a significant premium increase upon re-enrollment. Additionally, the types of recognized driving experience are limited, so drivers with actual driving experience have not been able to receive premium discounts, highlighting the need for improvement.
Going forward, for low-risk, good-standing drivers with a break in their history (grades 15?29), when re-enrolling, a rating three grades higher than their previous contract rating will be applied. This assumes that the low-risk group with a break in history (grades 12?29) re-enrolls with a three-grade surcharge from their previous contract rating (up to grade 11), considering that their loss ratio is equivalent to that of low-risk drivers who renew without a break. However, for grades 12?14, which have relatively shorter accident-free periods, grade 11 will be applied as currently.
For high-accident drivers with a break in history (grades 1?8), the re-enrollment rating will be adjusted to grade 8 instead of the current grade 11. This is based on the assumption that high-risk drivers with a break in history (grades 1?10) re-enroll at grade 8, where the loss ratio matches that of high-risk drivers who renew without a break, and considering that applying a fixed surcharge from the previous rating, as with low-risk drivers, would sharply increase premium burdens compared to the current system. However, for grades 9?10, which have relatively fewer accidents, the previous grades 9 and 10 will be applied instead of the current grade 11.
The improved criteria for applying discount and surcharge ratings to drivers with breaks in their history will apply to personal car insurance contracts (including small business vehicles owned personally) with breaks in history concluded since the introduction of the discount and surcharge rating system in September 2007, starting from contracts with coverage beginning on August 1. To minimize disparities among subscribers due to the timing of the system improvement, contracts re-enrolled within three years from the system implementation date (August 1, 2021?July 31, 2024) will have the improvements applied retroactively, with discount and surcharge ratings readjusted at the first renewal after the system implementation date.
Additionally, driving experience with long-term rental cars will also be recognized as insurance subscription experience. Currently, car insurance applies a surcharge rate when first enrolling if the driving experience is short, considering the higher accident risk, but offers discounts annually (up to three years) through the "insurance subscription experience rate system." Some driving experiences, such as military drivers and government office drivers, are recognized as insurance subscription experience even if the insured has not personally enrolled in car insurance.
However, recently, the use of long-term rental cars instead of purchasing vehicles has increased, and many do not enroll in car insurance under their own name, but the driving period with long-term rental cars has not been recognized as insurance subscription experience. This has caused an unfair situation where drivers with actual driving experience could not receive premium discounts when enrolling under their own name. Therefore, the Financial Services Commission and the Financial Supervisory Service have decided to recognize driving experience with long-term rental cars (excluding daily or hourly rentals) as insurance subscription experience. This recognition will apply to contracts with coverage beginning on June 1.
An official from the Financial Supervisory Service stated, "With this system improvement, long-term accident-free drivers will be reasonably recognized for their past accident-free experience even if their history is interrupted, enabling them to re-enroll at more affordable premiums. It is expected that the ability to differentiate premiums between long-term accident-free drivers and frequent accident drivers will enhance fairness in premium burdens."
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