The Financial Supervisory Service announced a draft notice to revise policy terms by applying the "8-week rule" to lower auto insurance loss ratios. The 8-week rule is a policy the Ministry of Land, Infrastructure and Transport is pushing to reduce auto insurance loss ratios and curb premium hikes. The gist is that when a traffic accident patient with minor injuries receives treatment for more than eight weeks, the insurer reviews the case to decide whether to pay benefits. The Financial Supervisory Service expects the Ministry of Land, Infrastructure and Transport (MOLIT) to finalize the revision soon and moved ahead with policy term changes.
According to the financial authorities on the 31st, the Financial Supervisory Service posted a draft amendment to the Enforcement Rules for Supervision of Insurance Business containing provisions on the 8-week rule. The draft also includes standards for paying future medical expenses that insurers have customarily paid to reach early settlements with victims. Future medical expenses refer to payments made in advance for additional treatment expected after treatment is concluded. The Financial Supervisory Service (FSS) plans to finalize the draft after collecting industry opinions.
The Ministry of Land, Infrastructure and Transport (MOLIT) on Jun. 6 issued a legislative notice of a revision to the Enforcement Rules of the Guarantee of Automobile Accident Compensation Act. The amendment requires traffic accident patients with minor injuries rated 12 to 14 who receive treatment for more than eight weeks to submit a medical certificate, progress records and information on impact from the crash. The insurer will then decide whether to extend or suspend the guarantee of payment through a review.
The Financial Supervisory Service expects the amendment to be finalized soon and prepared a policy term revision in advance. Although it is customary to revise policy terms after implementation rules under the purview of the Ministry of Land, Infrastructure and Transport (MOLIT) are finalized, the move is seen as a preemptive step amid mounting pressure to raise auto insurance premiums.
Recently, auto insurance loss ratios have risen sharply. In line with the authorities' shared-growth finance stance, nonlife insurers have cut auto insurance premiums every year since 2022. Last year they cut by up to 3%, and this year by 0.6% to 1%.
As a result, as of last month, the cumulative auto insurance loss ratio of the five major nonlife insurers—Samsung Fire & Marine, Meritz Fire & Marine, DB Insurance, Hyundai Marine & Fire Insurance, and KB Insurance—was tallied at 86%, up 3.7 percentage points (p) from a year earlier. The insurance industry generally views loss ratios in the 80% range as the break-even point for auto insurance.
Insurers are expected to post losses in auto insurance again this year, following last year. Next year, auto repair fees are set to rise 2.7%, so the loss ratio is expected to widen further. Large nonlife insurers have recently asked the Korea Insurance Development Institute to verify auto insurance premium rates, and an increase in the low-to-mid 1% range is expected.