By Kang Seung-woo
Non-life insurance companies are enjoying increasing profits thanks to improvements in their car insurance business, industry figures show.
The companies’ loss ratio on auto insurance declined for the second straight month in September, which added pressure on the firms to lower insurance premiums for customers. The loss ratio of 74.1 percent last month represented a decline from 75.7 percent in August and a 14 percent drop year-on-year.
The loss ratio refers to the amount of compensation paid to policy holders compared with the insurance fees they pay. Auto insurance providers say that a sub-80 ratio is a minimum requirement for a profitable business.
Last year, the car insurance loss ratio posted an all-time yearly record of 80.3 percent, with a loss of 1 trillion won in the sector. The ratio, which reached 90.4 percent in December last year, fell below the 70 percent mark in February and has been hovering in the mid-70s ever since.
The recent figures are much better than what the companies had been expecting, considering the number of cars damaged by flash floods during the historically-rainy summer and the traditional surge in car accidents between the summer vacation period and the Chuseok holiday.
The-K Non-Life Insurance posted the lowest ratio with 70.6 percent, followed by Samsung Fire and Marine Insurance, Hyundai Marine and Fire Insurance and Dongbu Insurance.
Among 13 non-life insurance companies that offer car insurance, only three ― Hyundai Hicar Direct, AXA General Insurance and ERGO Daum Direct Auto Insurance ― saw their ratios above 80 percent.
The industry attributes the decreasing figures to the financial regulator’s change in auto insurance payment methods to help local companies grappling with rising costs and lower profit margins.
According to the new system by the Financial Services Commission (FSC), drivers may have to shell out up to 10 times more for automobile repairs after an accident.
With the loss ratio sound, the Financial Supervisory Service (FSS) is expected to cut premiums for auto insurance.
The watchdog planned to take the action in the second half of this year, but it was shelved due to torrential rain across much of Korea in late July.
Thanks to the stable loss ratio, Samsung raked in 422.8 billion won ($365.29 million) in net earnings between April and August 2011, up 48.6 percent from a year ago.
But the industry thinks it is premature to cut rates after just seeing the loss ratio stabilizing for less than a year.
“Although the loss ratio is more stable than last year, it can move up and down on seasonal factors. It is appropriate to negotiate rate cuts after seeing how the ratio develops for at least one year,” said an industry official.