By Yoon Ja-young
Staff Reporter

Insurers are cutting auto insurance premiums following the global oil price hike, as they are paying out less insurance money than before as more drivers choose to leave their cars at home to save money.

Samsung Fire & Marine Insurance, the leader in the non-life insurance market here, was the first to initiate the move. It announced Monday a plan to cut its insurance premium on individual drivers by 1 to 3.8 percent from Aug. 16. It is the first reduction since May 2006.

The insurer said the cut was aimed at sharing the burden of subscribers suffering from high oil prices. The falling loss ratio also enabled the insurer to reduce its premiums, according to Samsung.

The loss ratio, or the ratio of the insurance money paid to subscribers compared with the insurance premiums collected by the insurer, has been falling recently. Insurance companies raised auto insurance premiums during the last few years, but the recent oil price hike has resulted in fewer cars on the road ― and consequently, fewer accidents.

The ratio, which peaked at 78.7 percent in fiscal year 2006, fell to 72.7 percent last year. It continued improving this year, currently hovering at below 70 percent. Samsung's loss ratio was recorded at 63.2 percent, as of May, the lowest level among non-life insurers. Hyundai, Dongbu and LIG, also big players in the market, also had the ratio drop to below 70 percent.

It helped non-life insurers record high profits last year, and they are expected to record a surplus in the auto insurance business in the first quarter of fiscal year 2008, the first time since the Asian financial crisis.

Other non-life insurers are expected to follow Samsung's move. Dongbu and LIG said they plan to lower premiums in September, and Hyundai is considering a reduction starting next month. Mid-tier insurers, which depended on relatively cheap insurance premiums for marketing, will likely follow suit.

The announcement made non-life insurers' share prices drop, but analysts said the effect would be minimal. ``Samsung estimated the auto insurance loss ratio for the fiscal year 2008 to be 70.1 percent, but the ratio dropped further than expected due to the surprise hike in oil prices. They seem to have lowered the insurance premium on the determination that the 70.1 percent loss ratio target is achievable regardless of the insurance premium cut,'' said Park Seok-hyun, an analyst at Meritz Securities.

He estimated the average insurance premium will be cut by 2.5 percent. ``The loss ratio will rise 0.6 percent in fiscal year 2008, and by 1.8 percent in 2009.''

Their earnings, however, won't be impaired, according to Park. The insurance premium hike last year could offset the rise in loss ratio. Goodmorning Shinhan Securities also said there will be minimal profit decrease for insurers despite the premium cut.

chizpizza@koreatimes.co.kr