Law to target car ‘over-repairing’

A new law revision could be in place as early as next April banning auto shops from “over-repairing” accident-damaged vehicles to make unnecessary higher claims from insurance companies.

The revised auto insurance law, introduced on Wednesday by the Financial Services Commission (FSC), will likely increase the auto insurance fee for most import models by 15 percent. It also lowers the amount that can be claimed for a replacement rental car during imported car repairs.

The revisions come as one owner of a Korean-brand compact sedan, surnamed Choi, had a minor collision with a luxury import compact car last month.

He said the import compact suffered a small scratch on the rear bumper, which he thought would require a small repair at low cost. He decided pay for the repair through his insurance company.

He was shocked, however, when his insurer advised him that they had been charged more than 2 million won ($1,700) for the repair and car rental.

“The import car driver changed the whole bumper, and he charged my insurance company with quite a large amount of rental fees, which piled up while his car was being repaired,” Choi said. “I’m so worried that my auto insurance will rise next year.”

The new law is intended to prevent cases such as Choi’s. Owners of damaged cars will be banned from charging insurers the cost of changing an entire bumper or major body part unnecessarily, because the financial authority is to ban auto repair shops from over-repairing. The law will determine whether a minor repair can be carried out through painting and plating.

The revision is aimed at “high-end cars,” as the number of import cars - which require high repair costs - rose in Korea. Local insurers have complained about the inflated repair costs for imported cars, as well as the money paid to car accident victims to rent replacement cars.

After the claims, local drivers also face heavier auto insurance fees.

According to the FSC, local repair shops changed bumpers in nearly 70 percent of total accident cases over five years from 2008 to 2013.

More bumpers were replaced on import cars than Korean-brand cars after accident claims, the FSC said, and import car bumpers were priced an average 4.6 times more expensive than Korean cars.

The FSC will establish a detailed repair guideline for bumpers jointly with the Ministry of Land, Infrastructure and Transport by end of this year to reflect the new rules on the standardized auto insurance terms and conditions.

“We’ll first try out the spelled-out repair standards on bumper repair cases, then we will prepare the standards on other parts like door and fender,” said Lee Dong-hoon, director of the insurance policy division at the FSC.

The revised policy also changes payment standards for rental cars while repairing.

Current standardized insurance terms and conditions allow an accident victim to charge insurance companies for costs in renting out the same car model as his own car. If the person owns a BMW 520d, which is sized 1,995 cc (0.5 gallons), and got in an accident, insurance companies have to pay the cost required in renting out another BMW 520d.

The FSC will implement a new rule as early as the first quarter of next year to allow insurers just to pay the rental price for renting out the cheapest car out of various models with the same displacement. With the new rule, insurers can cover the rental payment for a Sonata or K5, although a BMW 520d driver got into an accident.

Usually, rental fees for Korean cars are only about one-third of a BMW 5 series.

The FSC’s new rule also raises auto insurance fees for luxury cars. Cars that require repair costs that are 120 percent larger than the average auto repair costs will pay an insurance fee of up to 15 percent higher than now.

The luxury models subject to these fee hikes include 38 import cars, the BMW 3, 5 and 7 series; Mercedes-Benz C, E and S class; and Honda CR-V, and 8 Korean cars, Hyundai Equus Limousine and Genesis Coupe.

Owners of the BMW 5 series or Mercedez E class, who are now paying 600,000 won to 700,000 won a year, have to pay an extra 100,000 won under the new rule.

“The new policy will let local insurers save insurance compensation costs worth 200 billion won every year,” said Lee from the FSC. “This will lighten the auto insurance fee hike pressure for regular car owners.”

BY CHO MIN-GEUN [kim.jiyoon@joongang.co.kr]