Auto Insurance Premiums Likely to Rise by Around 1% Next Year... First Increase in 5 Years

Industry Moves to Raise Premiums as Loss Ratios Soar

Next year, auto insurance premiums are expected to rise by around 1%. Although the insurance industry has been lowering auto insurance premiums every year since 2022 as part of inclusive finance efforts, a sharp increase in loss ratios is now prompting the first hike in five years.

According to financial authorities and the insurance industry on December 28, the four major companies-Samsung Fire & Marine Insurance, DB Insurance, Hyundai Marine & Fire Insurance, and KB Insurance-had all requested a review of their auto insurance premium rates from the Insurance Development Institute by December 26. Most non-life insurers are reported to have proposed an increase rate of around 2.5%. However, it is understood that, through discussions with financial authorities, an increase in the low-to-mid 1% range is being seriously considered. The most likely rate is currently between 1.3% and 1.5%. Since these four major companies account for more than 80% of the auto insurance market, most other insurers who have not yet requested a rate review are also likely to follow suit.

Under pressure from authorities to promote inclusive finance, non-life insurers reduced auto insurance premiums by 1.2-1.4% in 2022, 2.0-2.5% in 2023, 2.1-3.0% in 2024, and 0.6-1% this year. Auto insurance premiums are set autonomously by non-life insurers. However, because auto insurance is mandatory and covers 25 million policyholders, it has a direct impact on people’s daily lives and inflation, so rates are coordinated with financial authorities.

The insurance industry believes that four consecutive years of premium cuts, combined with an increase in the average loss per accident, have pushed the loss ratio burden to its limit. As of November this year, the average loss ratio for auto insurance at the four major companies stood at 92.1%, exceeding the 90% mark. The cumulative loss ratio from January to November was 86.2%, up 3.8 percentage points from the same period last year. Generally, a loss ratio of 80% is considered the break-even point for auto insurance.

According to the Financial Supervisory Service, last year’s auto insurance business posted a deficit of 9.7 billion won for the first time in four years, and this year’s deficit is expected to expand to around 600 billion won. In addition, if next year’s standard repair costs-which insurers pay for accident vehicle repairs-rise by 2.7%, the worsening of the loss ratio could become even more severe.

Observers note that the stance of financial authorities has shifted somewhat this year. Previously, they emphasized inflation concerns and inclusive finance, pressuring insurers to lower premiums, but now, given the soaring loss ratios, there is a sense that further reductions are difficult to demand.

The Insurance Development Institute’s premium rate review is expected to be completed between January and February next year, with the new rates to be sequentially applied to actual premiums starting in February. With next year’s indemnity health insurance premiums expected to rise by an average of about 7.8%, and third- and fourth-generation policies projected to increase by 16% and over 20%, respectively, the burden of insurance costs on households is expected to grow.