Revising Insurance for Foreign Cars by Improving System for Discounts and Premiums

Financial authorities began revising the automobile insurance policies for car repairs. They agree that the current discount and premium system can no longer handle the unreasonable amounts of premiums paid for repairing foreign vehicles. 

Considering the changes that it will bring upon the general lifestyles of average citizens, increasing insurance fees is not a realistic answer to the requests that insurance companies make to recoup their deficits. Instead, authorities have decided to increase the repair premiums for certain models and brands of foreign vehicles, amidst controversy, as a means to keep things fair for insurance policyholders and to consider the industry’s request to adjust the rates to fit the current situation. 

The current repair premium structure allows a shortage of insurance for certain models of foreign vehicles overcharging when in accidents, to be covered by the insurance of other vehicles. 

Of course, luxury brands such as Audi, Mercedes-Benz, and BMW have a high repair premium, as the vehicles themselves are expensive. However, when these vehicles are involved in accidents, their pars and repair costs are still way too high, even when the price is considered. Last year, the loss ratio for property insurance companies covering automobile insurance was 62.2% for domestic vehicles and 81% for foreign vehicles. The total amount of repair premiums paid for domestic vehicles last year was 5.4309 trillion won (US$5.1083 billion), which is 0.4% higher than the previous year. However, for foreign vehicles, premiums paid were 473.7 billion won (US$445 million), which is 16% higher than the previous year. On average, repairing foreign vehicles is three to four times more costly than domestic vehicles in accidents. 

Authorities have gradually increased insurance premiums based on repair costs of foreign vehicles by adjusting the rates annually. But under the current system, the maximum percentage of a possible increase from the current insurance fee is 50%. Therefore, by expanding discounts and premium rates, authorities are changing the repair premium system, setting up for additional insurance rate increases for these foreign models.

A financial industry representative said, “Currently, there are 21 grade levels per vehicle model, and if this is increased to 26, then models eligible for the top grade will be receiving an 11% increase in their repair premiums.” The current system increases the insurance rate by 5% per grade level for a total of 11 levels, so by reaching the top grade level 1, the total increase in the insurance rate becomes 50%. In the top grades 1 through 5, some domestic models such as the Statesman are included, but mainly, 21 of 30 foreign brands such as Audi, Honda, Mercedes-Benz, and Volkswagen make up these levels. 

An industry associate said, “Since the US-Korea FTA in 2010, foreign vehicles from the US and Europe tried offering discounts in their new models for marketing purposes, but the importers actually increased the prices for parts, causing repairs to become more expensive,” and added, “The authorities are revising the repair premiums probably because they want to relieve the burden of insurance costs due to the increased repair costs of foreign vehicles.”