Major Improvements to Auto Insurance Including Expanded Scope of "Other Vehicle Driver Coverage" Special Clause

Financial Supervisory Service Announces Rationalization Plan for Auto Insurance Special Clauses
Rental Car Damage Coverage Now Available Immediately Upon Vehicle Rental
New Daily-Based Paid Transportation Clause Introduced to Support Delivery Side Jobs

A new special clause for rental car damage, which can be purchased immediately when renting a vehicle, will be introduced in auto insurance. The coverage and scope of drivers for the "other vehicle driver coverage" special clause, which is currently limited to the policyholder or their spouse, will also be expanded to include parents, children, and other family members.

On September 17, the Financial Supervisory Service announced that it has prepared a plan to rationalize special clauses in auto insurance products. The agency has decided to improve certain unreasonable special clauses and to set automatic enrollment as the default for essential special clauses.

A new special clause for expanded compensation based on vehicle standard value will be introduced. Currently, when calculating the standard value of a vehicle, the same annual depreciation rate is applied to vehicles of the same model year, regardless of the month of release. As a result, if a vehicle is released closer to the end of the year, the insured amount drops sharply the following year, leading to complaints that the compensation limit is lower than the market value. For example, for a new car with a value of 50 million won, the standard value for a vehicle released on January 1, 2024, would be 42.48 million won when renewing insurance this year. However, for a vehicle released on December 31, 2024, the standard value would be 37.86 million won. Going forward, a new special clause will allow for expanded compensation based on the number of months the vehicle has been in use, if the policyholder wishes.

A new daily-based special clause for paid transportation will also be introduced. Currently, personal auto insurance does not offer a period-based paid cargo transportation special clause, so even those who engage in temporary delivery work on weekends must enroll on an annual basis to be eligible for compensation. With the rise of the sharing economy, more drivers are using personal vehicles to deliver packages and cargo through "shared transportation services." In response, a new period-based paid transportation special clause will be added to personal auto insurance, allowing those who engage in temporary delivery work to enroll only for the periods they need.

A new special clause for rental car damage, which can be purchased immediately when renting a vehicle, will also be introduced. Currently, the available rental car damage special clause only takes effect from midnight (12:00 a.m.) the day after enrollment, so customers must enroll before the day of rental. Since auto insurance purchased by rental car companies often does not include coverage for self-damage (rental car repair costs), many renters purchase a separate rental car damage special clause. To address urgent rental needs, the effective time for the rental car damage special clause will be changed from midnight the next day to "from the time of rental." However, to prevent moral hazard, if more than one hour has passed since the vehicle was rented, coverage will begin from midnight the next day.

The coverage for the "other vehicle driver coverage" special clause will also be expanded. This special clause provides compensation for accidents that occur while the insured is driving another vehicle, as if it were their own. It offers the same coverage as bodily injury, property damage, and personal accident coverage for the insured's own vehicle. Currently, regardless of the insured vehicle's policyholder, the "other vehicle driver coverage" special clause is limited to the named insured and their spouse. Moving forward, the coverage and scope of drivers for this special clause will be expanded to match those of the insured vehicle's policyholder.

Many special clauses that are useful to consumers have low enrollment rates due to a lack of awareness of their necessity. To ensure that policyholders do not miss out on compensation due to not enrolling in beneficial special clauses, guidance will be strengthened. For designated proxy claim special clauses, which do not incur additional premiums, they will be included by default at enrollment, but policyholders may opt out if they wish. The scope of application will also be expanded so that the designated proxy claim special clause can be applied to all special clauses that provide payments through separate claims, such as diagnosis fees and nursing care expenses.

The wording of special clauses will also be revised to reduce complaints. Currently, some special clauses have unclear wording in the terms and conditions, leading to frequent consumer complaints about whether coverage is available. For example, in the family-limited driver special clause, siblings and de facto spouses of children or parents are excluded from the definition of "family," but the terms only list the insured's parents, daughter-in-law, and son-in-law, leading to frequent complaints and disputes. Going forward, the wording of special clauses will be improved to use more intuitive and simple language, and visual elements will be used to provide guidance when enrolling through direct channels (CM).

An official from the Financial Supervisory Service stated, "The rationalization of special clause compensation standards and coverage will be introduced sequentially in the fourth quarter of this year through the process of filing and approval of new special clause products and updating the IT system. Revisions to the wording of special clauses that do not require separate filing or approval procedures will be implemented immediately."