“I Saved One Million Won on My Automobile Insurance Premium”

Lee Yong-hyuk, a manager of Dongyang Insurance Co., recently compared automobile insurance premiums by insurance companies at the request of his friend. He was in for a shock: there was as much as a one million won difference among insurance premiums by companies.

Lee was aware of the fact that insurance premium differentiation had been going on, as he was working in insurance industry. However, he did not expect that the differential was that much. The automobile insurance market has turned into turmoil.

Although there was the tendency in the past that the larger an insurance company was, the higher the insurance premium the company imposed, the premium is being differentiated strictly by the terms of insurance contract these days.

Each Insurance Company Has an Automobile Insurance Premium of Its Own-

According to the estimate of the automobile insurance premium of a man called Sohn (32), which subscribed to a comparison insurance premium estimate site, Insnet (www.insnetkorea.com), on May 1, the premium of LG Insurance Co., Ltd. was the highest at 2,972,040 won, and that of Dongyang Insurance Co., the lowest at 1,916,590 won. The difference between the two was 1,055,450 won.

The insurance contract terms of Mr. Sohn were: buying insurance for the first time, a special agreement for those who are 21 or more years old, and a 1,600 cubic centimeter (cc) displacement car made in 2004.

When the estimate was made for a Mr. Lee (33), who was of a similar age, the insurance premium ranking by companies changed to the opposite.

While the insurance premium of Dongyang Insurance Co., which recorded the lowest rate before, turned into the highest rate at 800,330 won, that of LG Insurance Co. was 767,120 won, four percent lower. Hyundai Insurance Co. marked the lowest insurance premium overall (728,250 won).

The terms of the insurance contract for Lee were: buying insurance for the first time, a special agreement for those who are 30 or more years old, a special agreement only for his wife, and a 1995 car with a 2,000cc displacement.

The insurance premium of a Mr. Jung, 42, shows that the insurance premium rankings by insurance companies are not fixed.

On the basis of the contract terms, including buying insurance for the first time, a special agreement for those 35 or more years old, a special agreement only for his family, and a 2,500cc displacement car made in 2002, Jung’s insurance premium from Shindonga Fire and Marine Insurance Co. was estimated to be the lowest (885,320 won), and Samsung Fire and Marine Insurance Co. the highest (1,076,410 won).

Insurance Premium Competition Becomes Serious-

The reason why insurance premiums with the same terms have significantly different costs from different insurance companies is because this year saw insurance companies start to decide their own insurance premiums at their own discretion.

Even though insurance premiums have discretionarily been decided since August 2001, there had been “tacit collusion” among insurance companies until last year. The reason is because the companies felt uncomfortable altering their premium rates much, as their own market share would be changed by doing so.

However, it became possible for premium rates, which had been altered once a year, to be changed every three months starting this year, so that insurance premiums are being decided flexibly in accordance with market conditions.

In addition, because large insurance companies are reinforcing their marketing on specific social levels, the competition over insurance premiums is rising to a seemingly unlimited extent.

For example, Hyundai Insurance Co. subdivided 1,500 to 2,000cc displacement cars into two sets from last month, “1,500 or more to under 1,900cc displacement cars,” and “1,900 or more to under 2,000cc displacement cars” to differentiate its insurance premiums. This enables it to attract people who own a medium-size car with 2,000cc displacement as major clients. In addition, it lowered the premium of a special agreement only for husbands and wives by five percent.

Because of this, the insurance premium of Mr. Lee, who drives a 2,000cc displacement car with his wife, was the lowest from Hyundai Insurance.

An official of the Korea Non-life Insurance Association said, “Those who want to buy insurance should be careful to compare and select insurance products, as each insurance company has its own preferential social levels, and insurance premiums are subdivided and conditional upon various special agreements.”

Ki-Jeong Ko koh@donga.com