There are forecasts that this year's auto insurance deficit will exceed 500 billion won. While prices such as auto parts and labor have steadily risen, premiums have been cut for four consecutive years, sending the loss ratio soaring. Some say an increase in next year's auto insurance premiums is unavoidable.
According to the insurance industry on the 5th, the average auto insurance loss ratio for the four major nonlife insurers (Samsung, Hyundai, KB, DB) in January–September this year was 85.4%, up 4.4 percentage points from the same period a year earlier (81%). In particular, the average loss ratio for September alone was 94.1%, the highest since the industry began compiling the figure in 2020.
Considering seasonal factors, the loss ratio is likely to rise further from now. When heavy snow falls in winter and temperatures drop, battery failures and icy-road crashes increase, driving up total claim payments. The average loss ratios for the four nonlife insurers in November and December last year were 92.4% and 94.3%, respectively.
Auto insurance runs a deficit when the "combined ratio," which is the loss ratio plus the expense ratio, exceeds 100%. The expense ratio varies by insurer but averages around 16%. Adding the cumulative September loss ratio (85.4%) and the expense ratio (16%) shows the figure has already topped 100%.
The industry estimates that every 1 percentage point increase in the combined ratio generates a deficit of 160 billion to 180 billion won. Based on this, this year's deficit is projected at 500 billion to 700 billion won. Auto insurance swung to a loss last year at -9.7 billion won after posting a profit of 553.9 billion won in 2023.
KB Insurance, which released results first, posted a cumulative auto insurance loss of -42.2 billion won for the third quarter, down 74.9 billion won from 32.7 billion won in the same period a year earlier. Given that KB Insurance's January–September loss ratio is 85.4%, Samsung Fire & Marine Insurance (85.8%), Hyundai Marine & Fire Insurance (85.9%), and DB Insurance (84.7%) also are likely to post losses in auto insurance.
The insurance industry analyzes that four straight years of premium cuts are the cause of the surge in loss ratios. Thanks to advances in auto technology, parts such as sensors have become more expensive and labor costs have risen, yet only premiums were cut. According to the Korea Insurance Research Institute, while the consumer price inflation rate and the auto repair cost price index rose 2.3% and 2.4% last year, respectively, the auto insurance premium price index fell -2.8%.
The insurance industry says a hike in next year's auto insurance premiums is inevitable. The question is whether the financial authorities will accept it. Auto insurance premiums are included in the consumer price index, so the financial authorities weigh in for inflation management. It is difficult for insurers to decide on premium increases at their discretion.
An insurance industry official said, "It was hard to argue for a premium hike on the grounds of last year's 9.7 billion won deficit," but added, "Just as a profit of 300 billion to 500 billion won was a factor for premium cuts, a deficit of 500 billion won is likely to be a factor for premium increases."