Insurance firms told to cut auto premiums

Financial Supervisory Service Gov. Kwon Hyouk-se on Friday expressed his regulatory policy direction toward inducing a further slash in automobile insurance premiums.

“The insurance loss ratio could go up in July and August as accidents tend to increase during vacations and rainy seasons,” Kwon said during a breakfast meeting with the chief executives of 16 insurance companies and heads of their trade associations in Seoul.

“The industry should come up with measures to reduce the loss ratio.”

The insurance loss ratio is the ratio of total insurance payments divided by the total earned premiums. If the loss ratio goes below a certain level, insurance companies are given room to cut premiums.

“Please make efforts to ease the burden on the subscribers through intensive risk management,” Kwon said, indirectly calling on non-life insurers to pull down auto insurance premiums.

Non-life insurers, which reaped the largest-ever combined net profit of 2.4 trillion won ($2.08 billion) in the fiscal year that ended last March, cut their car insurance premiums by 2.5 percent on average. The reduction was widely perceived as small considering their huge net profits.

With insurance loss ratios marking 72.8 percent in April and 70.7 percent in May, chances are high for additional premium cuts.

Also at Friday’s meeting, Kwon criticized large conglomerates’ practice of having insurers under their wings handle their affiliate companies’ asset management, retirement pensions and real estate management.

“Insurance companies that are suspected of having unfair transactions with major shareholders will be held responsible,” he said, adding that rules will be revised to specifically determine what constitutes an unfair transaction.

Kwon also warned against insurers’ competition to raise interest rates for savings insurance products, which could raise the premium, and sales without providing all the details. The FSS has called on insurers to stop misleading consumers by telling them that the premium will jump if they sign up next month.

The CEOs of the insurance companies asked Kwon to ease regulations related to development of new products and make a consumer report to help customers better compare insurance policies.

By Kim So-hyun (sophie@heraldcorp.com)