South Korea’s Meritz Fire & Marine Insurance Co. has decided to cut auto insurance premiums for the third time this year, raising concerns that its move may spark a money-losing price war in the local non-life insurance industry.
Meritz Fire & Marine Insurance said on Monday that it will lower its auto insurance premiums for individuals by 0.8 percent starting September 6. It has already cut the rates twice this year - 0.8 percent in March and 0.7 percent in June.
The company’s decision to reduce auto insurance premiums comes after it posted improved earnings on reduced loss ratio, an unnamed Meritz Fire & Marine Insurance official said, adding that the company expects the ratio to go further down.
But some market watchers turned wary about Meritz’s latest move because it may ignite a price war among local auto insurance companies after major non-life insurance companies have already slashed their auto insurance premiums this year. Samsung Fire & Marine Insurance Co. has already lowered its rate by 1.6 percent and Hyundai Marine & Fire Insurance Co. 1.5 percent. Dongbu Insurance Co. and KB Insurance Co. have also decided to chop their auto rates by 0.8 percent and 1.5 percent, respectively.
Insurance rate is the key factor that consumers consider in determining their auto insurances because most auto policies are similarly designed.
Market experts find Meritz’s introduction of another cut in auto insurance premiums a bit risky as it has been already in a tight race with Hanwha General Insurance Co. in the second-tier group.
Meritz’s combined ratio in the first six month period this year has improved to 100.8 percent from 105.9 percent in the same period last year, but is still above 100 percent whereas its larger rivals’ ratio is below 100 percent.
The combined ratio is a measurement of an insurer’s profitability by comparing the incurred losses and expenses from daily operations against earned premium. For the case of Meritz with combined ratio of 100.8 percent, it means that the company incurred $0.80 loss by selling auto insurance worth $100.
While the country’s large non-life insurance companies are competitively lowering their auto insurance premiums, smaller players like Lotte Non-Life Insurance Co. and AXA General Insurance Co. have no ammunition. As for AXA that heavily relies on auto insurance products with nearly 85 percent of its total revenue generated from them, it is not easy to lower the auto rates without hurting its overall income, according to an industry expert.
The latest price competition is expected to further widen the market share gap between large non-life insurers and smaller peers, said an unnamed non-life insurance industry official.
By Park Joon-hyung
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