[Letters] Good signs for car insurance

At the end of last year, the Financial Services Commission (FSC) announced the improvement plan for automobile insurance, which includes considerably constructive ideas compared to past reform measures.

Just as the title, “For the Just Society,” suggests, various groups related to the automobile insurance issue need to do their share to achieve the improvements.

Whenever the automobile insurance premium increase is discussed, critics say that insurance companies need to initiate the reform. There is a bubble in the insurance premium, and the insurance companies are responsible.

But statistics suggest that insurance companies can make substantial difference in their operation expense, which is only 30 percent of the insurance premium.

The remaining 70 percent is decided based on the accident rate of the premium holder and the medical and repair costs associated with accidents.

As the operation expense may have bubbles, the accident rate, medical cost and repair cost can be reduced. And different groups affect these costs.

The previous auto insurance reform plans had partial approaches on a certain group, and hence, had limited effect or conviction. This time, the improvement plan conveys the message that all interested parties need to work together to eliminate the factors that lead to waste of money.

Unnecessary operation expenses should be regulated, and the insurance policy holders with high rate of accidents and/or with records of insurance fraud need to be strictly controlled. Moreover, the plan includes realistic measures to legally and systematically control the medical and repair expenses that are billed falsely or excessively.

Another strong point of the reform plan is the possibility of execution. Most of the measures proposed in the plan were included in previous plans.

But they were not properly carried out because of the conflicts of interest among involved parties and the consequent differences in related government agencies.

What sets this initiative apart from previous efforts is that the Ministry of Health and Welfare, the Fair Trade Commission, the National Police Agency, the Ministry of Land, Transport and Maritime Affairs and the Financial Services Commission have agreed to it.

Moreover, the initiative includes a plan to form a permanent consultative group on automobile insurance with director-level officials from each agency. The group is to regularly meet and discuss ways to improve the system.

When the loss ratio aggravates, insurance companies attempt to raise insurance premiums. The consumers will protest such moves, and the insurance companies will suffer aggregating sales deficit.

Hopefully, the reform plan will sever the vicious cycle in the automobile insurance market.

Lee Kyung-ju, a professor of insurance studies at Hongik University.