Since the standard insurance premiums for foreign cars are not clear, even when the repair period is prolonged because of the late arrival of components, costs are calculated according to the accident date, causing additional fees. (image: Kobiz Media / Korea Bizwire)
SEOUL, July 28 (Korea Bizwire) – The standards for insurance payments on foreign cars are not clear, exposing drivers of low-priced cars to financial risks.
Professors Ki Seung-do and Lee Kyu-hoon of the Korea Insurance Research Institute pointed out that domestic car drivers are exposed to more financial risks when getting in accidents with foreign cars.
The research team gave an example of a car accident that occurred last year. A Hyundai Santa Fe and a Bentley got into an accident that was entirely the fault of the domestic car’s driver. The insurance didn’t cover all the expenses, forcing the Santa Fe’s driver to pay an additional 100,000,000 won.
It cost 150,000,000 won to fix the 300,000,000 won Bentley, and the cost to rent the same car during the one month the car was being fixed was 1,500,000 won per day. The total amount of compensation was 200,000,000 won. However, the Santa Fe driver’s insurance only covered 100,000,000 won, forcing the unlucky individual to pay the additional 100,000,000 won.
The research team points out problems in equity. “Compared to domestic cars, the cost of components (4.7 times) and labor (2 times) are much higher. Also, rental fees are higher than domestic cars, resulting in higher social costs.”
Since the standard insurance premiums for foreign cars are not clear, even when the repair period is prolonged because of the late arrival of components, costs are calculated according to the accident date, causing additional fees. These cases have raised criticism that foreign cars are the main factor that increases the loss ratio of car insurance (compensation/collected insurance). The ratio has increased to 80.1 percent, while it was only 75.7 percent in 2011. Operating losses from covering foreign cars have increased from 416.2 billion won to 1.1 trillion won during the same period.
The research team suggests a solution. “The highest price of compensation for current car insurance is 500 million won. The maximum amount insured should be increased to 1 billion won, to remedy the problem of financial risks to the consumers. Also, a guideline should be set to minimize the difference in repair costs between expensive foreign cars and other cars. The insurance company should designate the range of repair payments or set a repair payment guide.”
The research team will present its material at the policy debate regarding the improvement of foreign car insurance systems held at the National Assembly hall.
By Kevin Lee (kevinlee@koreabizwire.com)
