Insurers Wary of Crash-Free Drivers

According to the Korea Insurance Development Institute’s “report on coinsurance for long-term accident-free drivers” presented yesterday by Dong-A Ilbo, accident-free drivers took out coinsurance policies in the insurance industry’s 2005 fiscal year (from April 2005 to March 2006) to pay insurance premiums 785.84 million won more than normal premiums.

This means that average insurance premiums per accident-free driver increased 35,720 won per annum.

The number of accident-free drivers who paid more than normal had exceeded 30,000 every year, including 39,000 (premium: 1.87517 billion won) in 2002, 34,000 (1.72390 billion won) in 2003, and 39,000 (1.38216 billion won) in 2004, but showed a decreasing trend last year.

The insurance industry analyzed that, “Amongst accident-free drivers last year, the number of those who had to extend their insurance terms or wanted to change their insurance firms seemed less than before.”

However, it is reported that there are some possibilities that accident-free drivers can be disadvantaged, in that insurance firms still have their own internal principle to avoid accident-free drivers.

Poor Service-

Insurance premium discount rates are set according to accident-free terms: 10 percent for one year, 20 percent for two years, 30 percent for three years, 40 percent for four years, 50 percent for five years, 55 percent for six years, and 60 percent for seven years.

As a whole, insurance firms are reluctant to insure those whose discount rates are 40 percent or higher with over four-year accident-free terms.

Current laws provide that insurance firms cannot decline requests for renewal of insurance policies, but can reject those who want to move from other insurance firms.

Insurance firms encourage accident-free drivers to take coinsurance on the pretext of complicated qualifications, including car age, driver age, and car type, as well as long accident-free terms.

Accident-free drivers sometimes experience troubles caused by poor service from insurance firms.

Mr. Hwang (48, from Nam-gu, Busan), who took coinsurance, could not renew the insurance since he had not been informed of the policy expiry date by the insurance firm. Accordingly, he had a traffic accident without insurance and had to pay millions of won in compensation.

Unfavorable to Insurance Firms As Well-

Insurance firms explain that they cannot help but be careful in choosing clients due to the excessive loss rates (ratio of insurance claim to premium).

Recently, the average loss rate of insurance firms increased up to around 80 percent. The insurance industry insists that reasonable loss rate be about 73 percent.

Accordingly, Shindongah Fire & Marine Insurance Co is planning to raise automobile insurance premiums for new applicants by two percent on average from next month; Green Fire & Marine Insurance Co 1.7 percent.

Moon Hyuk, executive chief officer of Insurance Consumer Committee, said, “It doesn’t make sense that insurance premiums rise despite no accidents. The system of automobile insurance should be revised for insurance premium to be linked to one’s lifelong accident rate.”

legman@donga.com