By Kang Seung-woo
Torrential rain across much of Korea in late July has hit non-life insurers hard with the number of damaged cars expected to reach a record high, the nation’s financial watchdog said Monday.
In addition, the record downpours are likely to prevent the Financial Supervisory Service (FSS) from pushing for cuts on insurance premiums in the second half of this year.
According to the FSS, there were 11,362 reports of car damage in July, the highest monthly figure, breaking the previous record of 11,198 claims after a typhoon in September last year.
The heavy rains also catapulted the amount of compensation owed to policyholders to a new mark.
The FSS estimated that 13 non-life insurance companies will have to pay policyholders 80.13 billion won, more than doubling the September payout of 35.67 billion, which translates to an average 7.05 million won of damage per car.
This has lifted the average loss ratio of the 13 firms to 77.6 percent in July, up from 73.3 percent the previous month. The loss ratio, or the amount of compensation paid to policy holders compared with their premium, is seen as the barometer for companies’ profitability. If a loss ratio stays above 76 percent for online firms or 72 percent for offline ones, auto insurance firms are unable to make ends meet. Last year, the auto insurance’s loss ratio posted an all-time yearly record of 80.3 percent, with a loss of 1 trillion won in the sector.
The FSS said that floods completely submerged a substantial number of cars, which resulted in higher maintenance costs than cars damaged due to other reasons.
Due to the soaring damage compensation claims, the financial watchdog’s move to lower premiums for auto insurance in the latter part of this year is likely to be shelved.
Thanks to a stable loss ratio in the low 70 percent range earlier this year, the FSS had planned to negotiate rate cuts with non-life insurance firms in September or October.
“In the first half, we have been seeking ways to lower premiums on the back of loss ratio stabilization, but the torrential rains, which swept through the country with flooding and landslides, have postponed the negotiations until the end of this year,” said an FSS official.
Observers say that growing compensation claims are likely to erode profits of non-life insurance firms, which were already hit hard last year in their auto insurance business, but the situation is not expected to result in premium hikes.
“We did see earnings rise in the fiscal first quarter, thanks to investment profits. But due to damages from the floods and seasonal factors in the second half of the year, we expect to see a further losses down the road,” said an industry official.
“Despite an increase in losses, it seems the industry won’t be able to move to raise premiums since it was widely criticized after hiking rates last year.”
In September last year, non-life insurance companies increased their premiums for auto insurance by 3 percent and smaller online players raised their premiums again later that year, drawing negative reactions.