Korean insurers face 190 billion won deficit in auto insurance, premium hikes loom

South Korean non-life insurance companies are facing significant financial strain, reporting a deficit of approximately 189 billion won (about $135 million) in their automobile insurance business during the first half of the year. This marks the first time since 2020 that the sector has experienced a mid-year deficit, signaling a concerning trend for the industry.

The primary driver behind this financial downturn is the deteriorating loss ratio, which reached 84.5% for the four major non-life insurers (Samsung Fire & Marine, Hyundai Marine & Fire, DB Insurance, and KB Insurance) in the first half of 2024. This figure represents a 1.9 percentage point increase compared to the same period last year. The industry generally considers a loss ratio around 80% as the break-even point for automobile insurance.

Industry insiders point to excessive treatments and over-prescription of herbal medicines, particularly from Korean medicine hospitals, as a major cause of increased insurance payouts. Data from the General Insurance Association of Korea reveals that the average treatment cost per patient at Korean medicine hospitals was 1.08 million won in 2023, 3.1 times higher than that of general hospitals. Problematic practices include the improper billing for premium hospital rooms, the use of expensive MRI scans, and bundled treatment claims.

Compounding these issues are rising operational costs, including increased repair service fees and daily wages for workers. The outlook for the second half of the year is also bleak, with seasonal factors like typhoons, heavy rains, and increased travel during holidays expected to further elevate the loss ratio. This escalating deficit raises the likelihood of additional automobile insurance premium hikes next year, following the modest 1.3-1.4% increase implemented earlier this year, which was the first in five years.