Korean non-life insurers pivot auto insurance expansion

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South Korean non-life insurance providers are pivoting to the market for auto insurance by scrapping their previous demarketing strategies for the product. The change comes as profits from auto insurance, often considered a loss-making product, recently improved because the loss ratio, measured by insurance claims paid out of the total earned payments, recently shown modest levels since the end of the Covid-19 pandemic.

Lotte Non-Life Insurance Co. announced it would expand auto insurance sales. The strategy differs from the company’s previous marketing approach that curtailed its auto insurance business by adopting stricter underwriting procedures for car insurance to invest resources into more profitable life insurance products.

The insurer’s raw premiums, or premiums received by the insurer from policyholders, shrank to 242.6 billion won ($187 million) in 2020 from 450.5 billion won in 2019, more than halving to 182.1 billion won in 2022 from 2019. The insurer’s primary premiums stood at 67.4 billion won as of the first half of 2023, down 9.3 percent year-on-year.

Meritz Fire & Marine Insurance Co., a pioneer in the initiation of a demarketing strategy for auto insurance, is now exploring opportunities to expand its auto insurance business. During its latest earnings call for the third quarter, the insurer stated its aspiration to provide the most competitive auto insurance products while maintaining a commitment to managing overall insurance losses effectively.

Car insurance is a must-have in Korea under the National Motor Act, but the product did not lead to huge profitability for the insurance industry. According to data from the Financial Supervisory Service, during the period from 2013 to 2020, insurers experienced losses in auto insurance every year except in 2017, when they recorded a surplus of 26.6 billion won. In 2014 and 2015, the deficit surpassed 1 trillion won and by 2019, the losses had escalated to 1.64 trillion won.

But there has been a notable turnaround since 2021, as the decrease in traffic resulting from the pandemic brought about a significant shift in the loss ratio for car insurance. The ratio, which was 92.9 percent in 2019, fell to 81.5 percent in 2021 and 81.2 percent in 2022, while auto insurance providers saw an increase in operating profit to 478 billion won in 2022 from 398.1 billion won in 2021. They earned 555.9 billion won in operating profit for the first half of 2023.

It remains to be seen how long this turnaround will last, as the financial authorities are pressuring insurers to lower premiums for car insurance.

The industry anticipates a potential 1.5 to 2 percent decrease in auto insurance premiums. According to industry projections, every 1 percent decline in auto insurance rates leads to an estimated decrease of approximately 200 billion won in auto insurance profit.