By Kim Jae-kyoung
Staff reporter
Four local direct insurance companies ― those engaged in the sale of insurance policies mainly through phones or online ― suffered from huge losses last year due to worsening profitability caused by soaring loss ratios on auto insurance.
According to industry sources Monday, combined net losses for the four ― ERGO Daum Direct Auto Insurance, AXA General Insurance, Hyundai Hicar Direct and The K Non-Life Insurance ― reached 30.2 billion won ($2.51 million) in 2009, compared with a $17.3 billion won shortfall in 2008.
ERGO Daum is the Korean arm of ERGO Group, the subsidiary of Munich Re Group, one of the largest insurance groups in Europe, while AXA General is the subsidiary in Korea of AXA Group, one of the leading global financial firms based in Paris, France.
By company, ERGO Daum posted the largest loss of 16.8 billion won, followed by Hicar Direct with a loss of 13.3 billion won and AXA Direct with a shortfall of 4.8 billion won. Only The K recorded a net profit of 4.8 billion won during the same fiscal year between April 2009 and March 2010.
"We are facing a double dilemma. Profitability is worsening due to the rising loss ratio on auto insurance, while financial regulators are discouraging us from raising insurance premiums," an AXA General Insurance executive said, on condition of anonymity.
"If a loss ratio stays above 76 percent, direct insurers are not able to break even. But the ratios for the industry hovered above 80 percent last year. In the current situation, the more auto insurance you sell, the bigger the loss incurred," he added. "If the ratio continues to stay at such a high level, our performance will be unable to turn around soon."
The loss ratio, or the amount of insurance money paid to subscribers compared with their premium, is seen as the barometer for companies' profitability. Direct insurance firms were hit hard by rising loss ratio on auto insurance as those policies account for more than 90 percent of their businesses.
"Direct insurance firms had a hard time last year due to sluggish sales of new vehicles, a slowdown in car registration and cutthroat competition to cut premiums amid the expansion of the online market," the executive said.
Insurers say that auto insurance premiums should be increased to make ends meet, but the top financial regulator does not agree with them. ``It is difficult to come up with measures only tailored for direct insurers,'' said an official at the Financial Supervisory Service (FSS).