Changes in auto insurance could inflate premiumsThe Financial Supervisory Service’s plan to change the automobile insurance surcharge system has prompted a big debate as to whether the move is for the benefit of consumers or insurance companies.
The Korean financial regulator last week held a public hearing in Yeouido, western Seoul, about a revision of the automobile insurance surcharge system that it aims to introduce in 2015.
“There has been almost no changes in Korea’s auto insurance surcharge rate system since 1989,” said Heo Chang-eon, deputy governor?of the FSS. “In April the FSS ordered research from the Korea Insurance Development Institute [about the revisions].”
Currently, the insurance surcharges are based on “accident points” that vary depending on the severity of the accident. For example, a driver who caused a fatal car accident will get 4 points on his record while minor accidents add 0.5 points.
Insurance companies examine their customer’s accident points each year and raise surcharges accordingly. Insurance payments usually go up by an average of 6.8 percent for each point, although exact rates differ according to each customer’s situation.
The FSS and KIDI are considering basing rates on the number of accidents rather than on their severity, meaning that minor accidents will end up costing motorists more.
According to KIDI data, about 20 percent of auto insurance holders, or 3.46 million drivers, who have histories of accidents will likely to see average hikes of 12 percent in their insurance premiums if the new system is implemented.
Insurance holders who don’t have accident histories, 13.8 million car owners, will see their premiums go down an average of 4 percent because insurance companies will offer discounts to accident-free drivers, according to KIDI.
The think tank for the insurance industry also came up with a plan to scrap a clause that prohibits insurance discounts for three years after a driver causes an accident. Under the revision, even if insurance holders have accident histories, they will be allowed to get discounts if they don’t have an accident for a year.
The insurance companies said that the revision will encourage car owners to avoid minor accidents.
Currently, car owners don’t hesitate to file claims for minor accident because they don’t affect their premium levels very much. Minor car accidents account for more than 60 percent of total accidents, according to KIDI.
Critics say the revised system is a cunning method for insurance companies to get more revenue by ripping off customers. According to the Korea Finance Consumer Federation (KFCF), the insurance industry is expected to have increased revenues of more than 511 billion won ($482 million) a year under the proposed system.
“Even if minor accidents occur, many drivers will cover damages from their own pockets because they will be afraid of insurance payment hikes,” the KFCF said in a release. “There is also going to be a problem of fairness because a driver who caused a massive fatal accident and received a huge amount of insurance money can pay lower insurance premiums than a driver who caused few minor accidents.”
According to the KFCF, a surcharge system based on the number of accidents is a global trend, but in fact more fatal car accidents occur in Korea than in other Organization for Economic Cooperation and Development?(OECD) countries.
According to 2010 OECD data, Korea’s death?rate in?car accidents was 11.3 per 100,000 people, the highest figure among 29 OECD members.
BY JOO KYUNG-DON [firstname.lastname@example.org]
More in Finance
Kospi up for third session ahead of long holiday
Big Hit Entertainment IPO price set at maximum 135,000 won
Stocks gain on rally led by U.S. tech firms
Kakao Pay aims to go public in the first half of next year
Kyobo Life Insurance gets greenlight to enter Myanmar