Big Four Insurance Companies Show Reluctance Even with 1% Commission Fee… Are They Going to Raise Car Insurance Premiums?

The Big Four insurance companies in South Korea (Samsung, DB, Hyundai, KB) are showing signs of slightly increasing car insurance premiums for online channels (CM) next year. 

The Big Four insurance companies in South Korea (Samsung, DB, Hyundai, KB) are showing signs of slightly increasing car insurance premiums for online channels (CM) next year. As the government intervenes in pricing to activate the underperforming insurance comparison services among the three major financial platforms (debt refinancing, savings, and insurance), these companies are developing additional countermeasures. The financial authorities have stated that they will take strict action if insurance companies increase the burden on consumers with high insurance premiums, even though they anticipate additional reductions in commission fees.

According to financial authorities and the insurance and fintech industries on October 1, discussions between insurance companies and platforms regarding the ‘Car Insurance Comparison and Recommendation Service 2.0,’ which is set to launch by the end of this year, will take place this month. They will finalize detailed plans to address the issues that have hindered the activation of car insurance comparisons, such as the insurance premium system and the scope of information sharing.

To enhance consumer benefits, a process is expected to unify prices between platforms and insurance companies while lowering the cost burden on insurers to the currently agreed commission level (from the mid-3% range to the 1% range).

Previously, the financial authorities announced plans to enhance consumer convenience through a new car insurance comparison service at the ‘3rd Insurance Reform Meeting’ held on September 26. It will ensure that insurance premiums are the same when compared through platforms like Naver Pay and Kakao Pay as when they are purchased directly from the insurance companies’ websites, requiring insurers to provide all relevant information without omission. A senior official from the financial authorities stated that this improvement plan was achieved through a “grand agreement” between the insurance companies and platform industries.

However, concerns about the transfer of consumer burdens are unlikely to subside. It is reported that large companies are considering another “obstruction” strategy to avoid losing market share of their own CM channels by reflecting (brokerage) commission fees when joining through platforms. In the upcoming practical discussions, large companies are examining whether to significantly lower the commission from the current 3.0% to as low as 1.0%, or even pass on the burden of a 1% commission to consumers in the CM insurance premiums. For example, if the CM insurance premium is 1 million won, they plan to charge around 1% more, making it 1.01 million won.

Despite the expectation that costs will drop to the 1% range, the insurance industry believes that even this will be a burden. Due to differences in setting platform commission fees among the sectors, when the service was belatedly launched in January of this year, the brokerage fee was set at a lower level of 3.0% from a maximum of 4%.

The large insurance companies’ actions are interpreted as a strategy to protect their car insurance performance. The profit and loss for the 12 companies handling car insurance is expected to maintain a surplus trend for the fourth consecutive year, estimated at 332.2 billion won as of the end of the first half. However, the surplus amount has decreased by 40.2% compared to the same period last year (555.9 billion won). Despite an increase in earned premiums during the same period, the loss ratio soared due to an increase in accident cases, and the business expense ratio increased due to rising sales and personnel costs, leading to a combined ratio (loss ratio + expense ratio) of 96.6%, worsening by 2.4 percentage points.

In contrast to the smaller companies, which charge higher commissions in the mid-3% range while ensuring that CM insurance premiums are the same as those of smaller firms, large companies appear to be seeking excessive profits.

A financial industry official pointed out, “The commission for platform comparisons is far lower than various direct insurance advertising and marketing costs, including internet banner ads (10-15%) and TV ads,” noting that large companies are increasing consumer burdens instead of reflecting the savings in product prices.

The financial authorities plan to take strict action against these behaviors by insurance companies. After unifying insurance premiums between insurance company websites and platform channels, they will work to eliminate any factors that could undermine consumer benefits, such as raising CM insurance premiums. Although around 25 million people are enrolled in automobile insurance, the share of insurance purchased through platform comparisons has been below 10% for more than six months. As the Financial Services Commission Chairman Kim Byeong-hwan pointed out the sluggish insurance comparison services after taking office, they are expected to actively prevent another factor that could undermine consumer benefits.