The government has decided to introduce a special insurance product offering a 2 percent annual premium discount to vehicle owners who participate in the two-day and five-day driving restriction program. The rationale is that reduced vehicle operation lowers accident risk, benefiting insurers. Vehicle owners would receive a refund of 14,000 won ($10) in annual premiums.
Insurers have expressed reservations since the auto insurance discount plan was first raised. The reason is that there is no way to verify whether a driver has actually participated in the two-day and five-day driving restriction. The government said it would verify driving records, but insurers would have to bear the burden of building verification systems and deploying personnel. If a driver does not use a driving log application, actual driving cannot be confirmed. Issues of overlapping benefits with mileage-based special contracts have also not been resolved.
Auto insurance is already suffering from structural deficits. Last year's auto insurance deficit alone reached 708 billion won ($519 million). The simple average loss ratio of the five major non-life insurers in the first quarter of this year was 85.2 percent, actually rising from 82.5 percent in the first quarter of last year. Although auto insurance premiums were raised this year for the first time in five years, the increase of only mid-1 percentage points was insufficient to recover the cumulative effect of rate cuts over the past four years.
Under these circumstances, introducing the two-day and five-day driving restriction discount special contract will only deepen insurers' losses. The industry estimates the annual discount burden at 240 billion won ($176 million). While the benefit per individual is not large, the burden that insurers must shoulder is substantial.
The problem is that insurers' financial burden could ultimately lead to premium increases, resulting in broader consumer harm. Auto insurance already carries many problems, including excessive medical treatment and inflated settlement payments.
The government's recent push to improve the system through measures such as the "8-week rule for minor injury patients" aims to resolve these issues and create a sustainable insurance system. Auto insurance discounts may appear beneficial in the short term, but in the long term they could become a burden for all of us. Now is the time to pursue the timely introduction of the 8-week rule for minor injury patients in conjunction with the launch of the fifth-generation indemnity insurance.
