Will Car Insurance Premiums Drop Amid Coexistence Finance Movement? Non-Life Insurers 'Anxious'

Financial Sector's 'Win-Win Finance Season 2' Kicks Off
Auto Insurance Loss Ratio Soars This Year
Premium Freeze or Reduction Likely

The non-life insurance industry is becoming tense as the financial sector is actively promoting win-win finance to revive the struggling economy amid the impeachment crisis. This is because the deficit in automobile insurance is imminent due to rising loss ratios, and there is a growing possibility of additional reductions in automobile insurance premiums next year.

According to the financial sector on the 23rd, the non-life insurance industry is recently reviewing the annual loss ratio of automobile insurance and whether profits have increased or decreased. This move follows the Financial Supervisory Service convening executives and department heads in charge of automobile insurance from the top five companies by automobile insurance sales share last month to assess the current status of this year's automobile insurance loss ratio and next year's premium increase. While non-life insurers are expected to hold further meetings related to automobile insurance premiums within this month as usual, the financial authorities have not yet taken any specific actions.

Automobile insurance premiums are determined by each non-life insurer calculating their own premium rates based on loss ratios and having them verified by external organizations such as the Korea Insurance Development Institute or actuarial firms. Although the structure appears to allow free setting of premiums, it is a common industry view that the influence of financial authorities plays a significant role. Typically, non-life insurers complete premium rate verification by the end of the year and consult with the Financial Supervisory Service at the beginning of the year. Last year, as part of the government's push for participation in win-win finance, automobile insurance premiums were lowered by 2.5?3% this year. Recently, the financial authorities announced that they would unveil 'Win-Win Finance Season 2' for the banking sector within this month, and on the 17th, decided to reduce merchant card fees for three years, signaling the full-scale movement of win-win finance in the financial sector, to which the non-life insurance industry responded that the time has come.

The non-life insurance industry holds the position that automobile insurance premiums must be raised due to the increase in this year's automobile insurance loss ratio. As of October, the loss ratio for automobile insurance of the four major non-life insurers?Samsung Fire & Marine Insurance, DB Insurance, Hyundai Marine & Fire Insurance, and KB Insurance?which account for about 85% of the automobile insurance market share, averaged 85.2% (simple average of four companies), up 3.7 percentage points from 81.5% in the same period last year. The cumulative loss ratio from January to October was 81.5%, up 2.9 percentage points from 78.6% the previous year. Samsung Fire & Marine Insurance recorded 84.2%, Hyundai Marine & Fire Insurance 85.8%, KB Insurance 87.8%, and DB Insurance 82.9%. Lotte Insurance (87.8%), Hanwha General Insurance (86.8%), and Meritz Fire & Marine Insurance (86.1%) also all exceeded a loss ratio of 85%. The industry considers an automobile insurance loss ratio of 82% as the breakeven point.

Although most non-life insurers have surpassed the breakeven loss ratio, it is expected to be difficult to raise premiums. Automobile insurance is an oligopoly dominated by large companies, so if only two or three top insurers make a profit, the entire market is perceived as profitable. This reduces the justification for raising premiums in the non-life insurance sector. In fact, some large companies are understood to have tentatively recorded profits in automobile insurance this year. Moreover, due to the impact of International Financial Reporting Standards (IFRS 17), the performance of large non-life insurers is expected to reach an all-time high this year, making it difficult to refuse the authorities' request to participate in win-win finance through automobile insurance. A non-life insurance industry official said, "This year, compensation costs such as medical expenses and labor costs have increased, so losses in the automobile insurance sector are obvious," adding, "Although raising premiums is inevitable, the atmosphere leans toward freezing or lowering them."