Measures are meant to stem rising losses in the sector as accidents increase
The Financial Services Commission yesterday unveiled auto insurance reforms to stem growing losses in the sector.The new measures will impose penalties on policyholders for traffic violations, strengthen curbs on auto insurance fraud and limit spending by auto insurers.
The FSC said it expects these measures to lower auto insurance premiums by about 6 percent in the short term.
Left unsolved, however, are the most contentious issues such as the cost of car repairs and hospital stays resulting from car accidents.
The measures are the fruit of three months’ deliberation among six government agencies and think tanks.
“It’s meaningful that measures concerning auto insurance have been prepared for the first time in a concerted effort spanning the entire government,” said FSC Vice Chairman Kwon Hyouk-se.
The government bodies included the FSC, the Ministry of Health and Welfare, the Ministry of Land, Transport and Maritime Affairs, the Fair Trade Commission, the National Police Agency and the Financial Supervisory Service.
The measures are in response to the unsustainably high level of auto insurers’ loss ratio, which has caused large operating losses and forced them to raise premiums twice this year.
The loss ratio refers to how much of the incoming premium an insurance company pays out as claims.
Under new measures, auto insurers will be forced to accept a ceiling on spending for sales activities, such as marketing campaigns and brokers’ fees. The expenditures will be limited to only 40 percent of the planned budget declared by the company in advance. In fiscal 2009, auto insurers spent 48.8 percent of their planned expenses on sales activities.
Policyholders will be assessed according to the amount of traffic law violations and car accident costs, which the FSC said would lead to the “reasonable” setting of insurance premiums.
Policyholders will now be responsible for 20 percent of the cost of damages from a car accident with a ceiling of 400,000 won (roughly $350) instead of a fixed cost of 50,000 won as in the past.
Traffic violations will be tabulated over two years instead of one, penalizing drivers with frequent violations. Policyholders with unblemished driving records will be rewarded with a premium discount of up to 70 percent over 18 years, instead of 60 percent over 12 years.
A stronger crackdown will be conducted on “absentee patients” who exaggerate their injuries to justify higher hospital costs. The mandatory submission of car repair quotes to auto insurers has also been specified. The measures will take effect immediately with revisions to the legal code to follow during the first quarter of 2011.
However, the authorities have delayed the resolution of some contentious issues for future negotiations.
Car repair costs can still reach up to 2 million won without increasing insurance payments. The policy, instituted by the current administration, has been criticized as causing a lot of inflated “1.99 million won car repairs.”
The generous hospital cost payoff rate by auto insurers is much higher than that of health insurance schemes and has been blamed for causing inflated hospital stays, but remained intact.
A proposed rise in traffic fines and a ban on watching video screens while driving remain under review.
According to the FSC, Korea’s accident rate for those with auto insurance reached 27.7 percent in September, up from 22.9 percent in 2007.
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