It is estimated that the measures to cut car insurance premiums for the fourth consecutive year have had a decisive impact on the worst damage in the 2020s, with a total deficit of 700 billion won in the domestic auto insurance market this year. Analysts say that while prices that make up insurance money, from health insurance benefits to minimum wages and maintenance fees, have risen, the loss has widened as insurance premiums, which are a factor of insurance companies’ income, have decreased.

The government and insurance companies are working on self-rescue measures one after another as the deficit in car insurance by non-life insurers is expected to widen, but it is pointed out that there is no sharp solution other than raising insurance premiums.

According to the data disclosed to the Non-life Insurance Association by the four major non-life insurers (Samsung Fire & Marine Insurance, DB Insurance, Hyundai Marine Insurance, and KB Insurance), car insurance premiums have fallen 1-3% every year until this year, starting with a 1.2-1.4% cut in 2022. As a result, the raw insurance premiums collected by the four major non-life insurers from car insurance were reduced from 17.9649 trillion won in 2023 to 17.619 trillion won last year. Analysis of the statistics on the number of personal car insurance premiums in Korea shows that the premium income of the four major non-life insurers decreases by about 120 billion won per year when the premium is cut by 1% compared to the previous year.

Annual premiums have fallen, but the cost of making up the insurance money has all gone up. The minimum wage has risen every year from 2022 (5.1% increase rate) to this year (1.7%). When wages, including the minimum wage, increase, the amount of lost income that constitutes the insurance money increases. The loss of business closure and loss of profits are the part where insurance companies compensate for the financial damages caused by being unable to work due to car accidents. In addition, the cost of health insurance benefits has increased to around 2% every year since 2022, and as a result, the cost of medical treatment for car insurance has also increased. Maintenance fees also increased to 2.4 to 4.5% every year, which contributed to increasing insurance payments paid for material compensation.

Despite the deterioration of the car insurance profit and loss structure, the reason for the surplus between 2021 and 2023 is the COVID-19 pandemic. Since the spread of COVID-19 in 2020, vehicle operations have plummeted, resulting in a significant decrease in automobile accidents. However, since the end of COVID-19 in May 2023, vehicle operations have increased again and abnormal weather has been observed more frequently, leading to a surge in car accidents. This is why the domestic car insurance industry turned to a deficit last year. This year is worse. Due to the cold wave and heavy snow that continued into March, emergency dispatch of cars became more frequent, and in summer, monster heavy rain hit the country, causing several car flooding accidents.

As a result, the loss ratio of car insurance for the four large non-life insurers was 85.4 percent in the first nine months of this year, up 4 percentage points from the same period last year. Amid the increase in car accidents, some clinics and oriental medicine hospitals are generating profits by over-treating traffic accident patients, which appears to intensify car insurance losses.

The government also recognizes the worsening performance of car insurance as a serious problem. The Ministry of Land, Infrastructure and Transport is pushing for a plan to allow ordinary patients to undergo a review by insurance companies when they are treated for more than eight weeks through the “Amendment to the Enforcement Rules of the Automobile Damage Compensation Guarantee Act.” However, it is struggling to pass the law in the face of opposition from the oriental medical community.

Insurance companies are also making their own efforts to reduce insurance spending. First of all, it is inducing safe driving by reducing insurance premiums for safe drivers. It is also expanding the benefits of lowering insurance premiums to customers equipped with accident prevention devices or subscribers who use public transportation a lot.

As such, the government and the insurance industry are making various attempts to prevent the leakage of insurance money, but in the end, it is analyzed that it is impossible to improve the profit and loss structure of car insurance without a reasonable increase in insurance premiums. Until the third quarter of this year, the four major non-life insurers have already turned from car insurance to deficits except for DB non-life insurance. Industry sources believe that DB insurance also has a strong deficit in car insurance on an annual basis. Accordingly, the insurance industry plans to actively express the need to raise car insurance premiums more than ever. At a recent conference call, Kwon Young-jip, managing director of Samsung Fire & Marine Insurance’s auto insurance strategy team, said, “We are currently considering raising insurance premiums next year in consideration of the level of the combined ratio.”

[Reporter Park Changyoung]