Tesla boom raises concerns over Korean auto insurers' loss ratios

The growing popularity of imported electric vehicles (EVs) such as Tesla’s Model Y in Korea is raising concerns among non-life insurers that high repair costs could push up auto insurance loss ratios, industry officials said Sunday.

Figures from the Korea Insurance Development Institute (KIDI) show that the number of EVs covered by auto insurance climbed to 911,797 in the first half of this year from 182,957 in 2021, an almost fivefold increase.

EVs accounted for 3.7 percent of all insured vehicles, up from 0.8 percent over the same period.

For insurers, however, the growing EV market brings higher claims costs relative to premium income.

The EV loss ratio, including claims adjustment expenses, reached 107.6 percent last year, exceeding the 88.2 percent recorded for non-EVs by 19.4 percentage points. The gap remained wide in the first half of this year, with EVs posting a ratio of 105.1 percent against 85.6 percent for non-EVs.

A ratio above 100 percent indicates that payouts and claims handling expenses outweigh premium income.

The gap was much narrower in 2021, when the ratios were 83.0 percent for EVs and 81.9 percent for non-EVs, but has widened steadily since.

KIDI identifies greater mileage and expensive replacement parts as key reasons for the disparity.

With lower running costs, EV owners are believed to drive longer distances, increasing their exposure to potential accidents. Mileage therefore needs to be considered alongside driver behavior and vehicle characteristics when comparing accident rates.

The figures also show that EVs are involved in accidents more frequently, with their annualized accident rate standing at 18.8 percent last year, compared with 15.2 percent for non-EVs.

Tesla’s rapid sales growth is adding to the pressure, according to industry officials. Korea registered 59,916 new Teslas last year, more than twice the 29,750 recorded a year earlier. Registrations totaled 89,148 through September this year, already well above the previous year’s total.

Parts and repairs typically cost more for imported cars than for Korean models. When replacement parts take longer to arrive, insurers may also face larger bills for rental vehicles provided during repairs.

Insurers consequently face both more frequent claims and larger repair bills for similar damage.

Despite these pressures, EV premiums have fallen. The average annual premium per EV stood at 869,054 won ($650) last year, about 19 percent higher than the 728,227 won for non-EVs but down from 930,581 won in 2021. The EV average fell further to 856,617 won in the first half of this year.

“Profitability is coming under increasing strain as more EVs take to the road, bringing higher accident rates and repair bills, while premiums continue to fall,” a Seoul-based non-life insurance industry official said. “Higher premiums would ease the pressure on loss ratios, but increases are difficult when EV drivers already pay more for coverage and policymakers are seeking to expand adoption.”

Still, persistently high loss ratios could lead to premium increases for certain models when policies are renewed, the official added, explaining that insurers use KIDI figures and other data to adjust premiums based on each model’s claims history and loss ratio.