Car insurers face growing losses after heavy rains

Vehicles are submerged as roads in the Buk District of Gwangju flood due to extreme heavy rain, Thursday. Yonhap

More than 3,000 vehicles were reported to have been damaged by flooding over a five-day period due to heavy downpours that swept across the country last week, resulting in losses estimated at nearly 30 billion won ($22 million), according to industry officials Tuesday.

They said the number is expected to rise further, as the scale of vehicle flood damage is higher than expected, making it inevitable for non-life insurers to face an additional increase in their vehicle insurance loss ratios.

Data from the General Insurance Association of Korea shows that a total of 3,131 flood-damaged vehicles had been reported to 12 non-life insurance companies offering motor vehicle coverage between July 16 and 9 a.m. on July 21, following the heavy rainfall. The estimated losses amounted to about 29.6 billion won.

"The scale of the damage is significant due to the many days of intense, prolonged rain. Since claims are still being filed, the figures are likely to rise," an official from the insurance industry said.

What makes the situation more concerning is that the typhoon season has not even begun, suggesting that the vehicle insurance loss ratio, which has already surpassed the breakeven point of 80 percent, is likely to rise further.

As of Monday, the average vehicle insurance loss ratio for the four major non-life insurers — Samsung Fire & Marine, Hyundai Marine & Fire, DB Insurance and KB Insurance — stood at 82.6 percent for the January to June period, up by 3.1 percentage points from a year earlier.

In the insurance industry, a loss ratio of 80 percent is generally considered the breakeven level, with any figure above that effectively indicating operating losses.

Data from the Financial Supervisory Service, the country's financial watchdog, shows that Korean insurers posted a 9.2 billion won loss in their vehicle insurance sector last year, ending a four-year streak of profitability since 2020.

The loss was driven by four consecutive years of premium reductions in line with government efforts to support low-income motorists, coupled with a continued rise in repair costs.

If a typhoon occurs amid abnormal weather conditions, vehicle damage and car insurance loss ratios are likely to rise, making increases in premiums inevitable.

However, the Lee Jae Myung government's strong emphasis on maintaining price stability is creating challenges for such measures, especially since vehicle insurance premiums significantly impact inflation as they are included in the consumer price index.

"If the current trend persists, the sector will inevitably become unprofitable, making it necessary to restore profitability by raising premiums," an industry insider said. "However, given that the new administration is still in its early phase, there is hesitation about increasing rates. A decision on a potential premium hike is likely to be made toward the end of the year."