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 increase by around 1%. Although the insurance industry has reduced auto insurance premiums every year since 2022 as part of inclusive finance efforts, the surge in loss ratios is prompting an increase for the first time 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 the Korea Insurance Development Institute to verify their auto insurance premium rates by December 26. Most non-life insurers have reportedly proposed an increase of around 2.5%. However, it is understood that, after discussions with financial authorities, an increase in the low-to-mid 1% range is being strongly considered. The most likely increase at this point is between 1.3% and 1.5%. Since these four major companies account for more than 80% of the auto insurance market, it is highly likely that most other insurers, who have not yet requested rate verification, will follow suit.

Under pressure from authorities to practice inclusive finance, non-life insurers lowered 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, as auto insurance is mandatory and covers about 25 million policyholders, it is directly linked to everyday life and has a direct impact on prices, so rates are coordinated with financial authorities.

The insurance industry believes that four consecutive years of premium reductions, combined with an increase in the average loss per accident, have pushed the burden of loss ratios to their 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. Typically, 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 the deficit for this year is expected to expand to around 600 billion won. In addition, if the standard repair cost-the amount insurers pay for accident vehicle repairs-increases by 2.7% next year, the deterioration in loss ratios could become even more severe.

It is also assessed that the stance of financial authorities has somewhat changed this year. Previously, they pressured insurers to lower premiums, emphasizing the impact on inflation and inclusive finance, but amid soaring loss ratios, there is a growing sense that it is difficult to demand further reductions.

With the Korea Insurance Development Institute’s rate verification expected to be completed between January and February next year, the actual premium increases are likely to be applied sequentially from February. As actual medical expense insurance is set to rise by an average of about 7.8% next year, with third-generation policies increasing by around 16% and fourth-generation policies by around 20%, the insurance burden on households is expected to grow.