Automobile Insurance in Korea. Fact Book 2014

Transcription

1 Automobile Insurance in Korea Fact Book 2014

2 Automobile Insurance in Korea Fact Book 2014

3 Forewords Twelve years have passed since Fact Book was first published in The Korea Insurance Development Institute (KIDI) believes Fact Book has successfully introduced trends and changes in the Korean automobile insurance industry to our readers across the globe. I am deeply honored to announce the publication of this year's Fact Book, with the hope that it will continue to shed light on the Korean automobile insurance market. In Korea, automobile insurance is considered one of the core business lines in the non-life (general) insurance sector, accounting for 17.5 percent of the entire non-life market. The size of automobile insurance totalled approximately KRW 12.2 trillion (USD 11.1 billion) in written premium. Specifically, vehicle registration grew by 2.8 percent in However, written premium of automobile insurance decreased by 0.4 percent from the previous year, due to the increase of discount products in the automobile insurance. In the mean time, the loss ratio of automobile insurance was 86.8 percent in 2013, a slight deterioration compared to 2012, despite insurances companies and government's efforts to reduce car accidents and stabilize the loss ratio. Meanwhile, market competition became intensified in The market share of on-line direct insurers jumped to 29.2 percent, an increase from 27.0 percent of the previous year. Fact Book 2013 contains various statistics that show current situation of the automobile insurance in Korea. We are confident this Fact book will provide you with a comprehensive understanding on the Korean automobile insurance market. KIDI always strives to provide specialized and professional service for insurers, customers, and supervisory authorities in Korea, and ultimately to become a responsible member of the global insurance industry. Kim, Soo-Bong Chairman & CEO Korea Insurance Development Institute

4 c Korea Insurance Development Institute (Published September 2014) All rights reserved. No part of this publication may be reproduced, stored in a retrieval system or transmitted in any form by any means, electronic, mechanical, photocopying, recording or otherwise, without the prior permission of the publishers and copyright owners.

5 Contents Chapter 1 : The Korean Insurance Industry 1 Chapter 2 : The Non-Life Insurance Market 6 1. Written Premium and Incurred Losses by Line of Business 6 2. Non-Life Insurance Expenses by Line of Business 9 Chapter 3 : The Korean Automobile Insurance Market Number of Registered Vehicles Written Premium and Incurred Losses by Line of Automobile Insurance Accident Statistics General Accident Insurance Accident by Coverage Expenses and Expense Ratio Underwriting Results Residual Market Acts Related with Automobile Insurance Guarantee of Automobile Accident Compensation Act Act on Special Cases concerning the Settlement of Traffic Accidents Insurance Business Act Automobile Insurance Plan(AIP) Ratemaking System Ratemaking Improvement in Ratemaking System Deregulation on Insurance Rate Approval System 26

6 APPENDICES 29 Appendix I. Korea`s Automobile Insurance 31 Appendix II. Glossaries 32 Appendix III. Special Clauses 35 Appendix IV. KIDI's Brief History & Members 36 Appendix V. KIDI Organizational Chart 38

7 Chapter 1 : The Korean Insurance Industry In 2013, the Korean insurance industry reported a 2.4 percent increase in growth rate of written premium while GDP grew by 3.0 percent. Behind such decline of insurance growth rate was the amendment to the income tax law, which resulted in reducing tax benefits provided to saving insurance. Lower demand for saving insurance has brought about low growth in insurance compared to the previous year. GDP and Insurance Industry Growth Rate Percent GDP Life Non-Life Insurance Notes : 1Written premium in life Insurance, 2Written premium in non-life insurance Sources : KIDI, Monthly Insurance Statistics Bank of Korea, Economic Statistics Yearbook GDP and Insurance Industry Growth Rate,

8 The life insurance premium to GDP ratio was around 6.5 percent until 2011 and then increased to 7.6 percent in 2013, while non-life insurance premium to GDP ratio increased until In 2013, non-life insurance premium to GDP ratio was equal to that in 2012, affected by the amendment to the income tax law. Premiums as a percentage of GDP Percent Life Non-Life Total Source : KIDI, Monthly Insurance Statistics Bank of Korea - Main Annual Indicators (reference year 2010, 2000~) In 2013, premium per capita (insurance density) was 3,551 thousand won, an increase by 2 percent compared to the previous year and about 1.5 times higher than that in The insurance density of life insurance and non-life insurance were 2,162 thousand won and 1,390 thousand won, respectively. For the last five years, life insurance has increased 1.4 times, while non-life insurance has increased 1.7 times. Premiums Per Capita Thousand won Life 1,534 1,638 1,741 2,142 2,162 Non-Life 839 1,001 1,151 1,340 1,390 Total 2,373 2,639 2,892 3,483 3,551 Note : Estimated population by Korea National Statistical Office Source : KIDI, Monthly Insurance Statistics In 2013, life insurance and non-life insurance in written premium grew 1.3 percent and 4.1 percent from the previous year, respectively. The increase in written premium has slowed due to the income tax amendment in Written Premium Billion won Life 75,447 80,939 86, , ,559 Non-Life 41,263 49,478 57,296 67,012 69,784 Total 116, , , , ,343 Source : KIDI, Monthly Insurance Statistics - 2 -

9 Written Premium of Life & Non-Life Insurance (2013) In 2013, shares of written premium for life and non-life insurance were 60.9 percent and 39.1 percent, respectively. Total Asset of Life & Non-Life Insurance (2013) In 2013, shares of total asset size of life and non-life insurance were 77.8 percent and 22.2 percent, respectively. The total asset size of insurance has grown by 14.4 percent per annum for the past five years. In 2013, it recorded 768 trillion won, of which life and non-life each accounted for 597 trillion won and 171 trillion won, respectively. Life Non-Life Total Total Asset Trillion won, % (12.8) (13) (8.6) (23.7) (8.9) (15.3) (19.3) (24.2) (23.6) (12.5) (13.3) (14.2) (11.6) (23.7) (9.7) Note : Figures in the parentheses indicate annual growth rate Source : General Insurance Association Of Korea, Monthly Insurance Statistics L i f e Inasurance Association Of Korea, Monthly Insurance Statistics - 3 -

10 There are 25 life insurance companies and 31 non-life insurance companies in Korea. 17 out of 31 non-life insurance companies are not involved in the automobile insurance business (the majority of them are reinsurers). Life Insurance Non-Life Insurance Auto Non-Auto Hanwha Life Insurance Co., Ltd. Samsung Life Insurance Co., Ltd. Heungkuk LIfe Insurance Co., Ltd. Kyobo Life Insurance Co., Ltd. Meritz Fire & Marine Insurnace Co., Ltd. Hanwha Non-life Insurance Co., Ltd. Lotte Non-llife Insurance Co., Ltd. MG Non-life Insurance Co., Ltd. Hyundai Life Co., Ltd. Heungkuk Fire & Marine Insurance Co., Ltd. Shinhan Life Insurance Co., Ltd. WOORIAVIVA Life Insurance Co., Ltd. KDB Life Insurance Ltd. Mirae Asset Life Insurance Co., Ltd. KB Life Insurance Ltd. Dongbu Life Insurance Co., Ltd. Dongyang Life Insurance Co., Ltd. ING Life Insurance Ltd. BNP PARIBAS CARDIF Life Insurance The Prudential Life Insurance Company Hana Life Insurance Co., Ltd. Alianz Life Insurance Co., Ltd. MetLife Insurance Company of Number of Insurance Companies Samsung Fire & Marine Insurance Co., Ltd. Hyundai Marine & Fire Insurance Co., Ltd. LIG Insurance Co., Ltd. Dongbu Insurance Co., Ltd. Seoul Guarantee Insurance Company Korean Re Insurance Company American Insurance Group, Inc. ACE American Fire & Marine Insurance Company Korea FEDERAL Insurance Company Korea First American Title Company Korea Branch Mitsui Sumitomo Insurance Co., Ltd. AXA Genral Incurance Co., Ltd. The-K Non-life Insurance Co., Ltd

11 PCA ERGO Daum Direct LIfe Insurance Co., Ltd. General Insurance Co., Ltd. ACE Hyundai Hicardirect Auto Insurance Life Insurance Ltd. Co.,Ltd. LINA Life Insurance Co., Ltd. DAS Legal Expenses Insurance Co., Ltd. American International NongHyup Assurance Property & Casualty Insurance Co., Ltd. IBK Pension Insurance General Re Insurance Company Korea NongHyup Life Insurance Co., Ltd Swiss Re Insurance Company Korea Kyobo Lifeplanet Insurance Company Munich Re Insurance Company Korea Tokio Marine & Nichido Fire Insurance Co., Ltd. SCOR Re Insurance Company Korea RGA Re Insurance Company Korea Hannover Re Insurance Company Korea AIG United Guanranty Insurance Co., Ltd. Korea Branch Genworth Financial, Inc. Korea Branch Notes : 1. In business, Not in business 2. New York Life Co. was renamed ACE Life Korea in February, Greencross Life Co. was renamed Hyundailife Life Co. in February, Korea Life Co. was renamed Hanwha Life Co. in October, Green Non-life Insurance Co. was renamed MG Non-life Insurance Co. in May, Kyobo Lifeplanet Insurance Company established in Sep, 2013 The number of employees and solicitors hired by life insurance companies is not much different from the number of those hired by non-life insurance. However, life insurance has 1.4 times more branch offices than non-life insurance has, while non-life insurance has 5.3 times more agencies compared to life insurance. Employee and Distribution Channel by Insurance Business number, person Branch Offices Employees Solicitors Agencies Life 4,402 30, ,228 7,035 Non-Life 3,251 33, ,253 36,952 Note : Number of dependent sales agents on the basis of registration Source : Financial Supervisory Service(FSS), Financial Statistics - 5 -

12 Chapter 2 : Non-Life Insurance Market 1. Written Premium and Incurred Loss by Line of Business In the non-life insurance market, total written premium has grown from 41,249 billion won in 2009 to 69,725 billion won in Despite decrease of savings portion in long-term insurance and discounts to premium in automobile insurance, the share of written premium for automobile and long-term insurance has reached 83.6 percent in Written Premium By Line of Business Billion won Automobile % Long-term % Guarantee % Marine % Fire % Others % Total , , , , , , , , , , , , , , , , , , , , , , , , ,725 Notes : 1. Annuity is included in long-term insurance. 2. Others include casualty, personal accident, retirement insurance, etc. 3. % is annual change. Source : KIDI, Monthly Insurance Statistics, Monthly Auto Insurance Statistics(Automobile) In 2013, written premium amount in long-term insurance reached 46.1 trillion won, which accounted for 66.1 percent of the non-life insurance market. Automobile insurance came second with 12.2 trillion won (17.5%), followed by Guarantee insurance with 1.8 percent and Marine with 1.1 percent Written Premium by Line of Business - 6 -

13 In 2013, long-term insurance and automobile insurance recorded high loss ratio of 85.9 percent and 86.8 percent, respectively, while Marine and Fire insurance showed relatively low incurred loss ratio of 63.0 percent and 39.2 percent, respectively. Loss ratio of Marine and Fire insurance showed big fluctuations during the past five years, and that of Automobile, Long-term and Guarantee insurance increased gradually for the same period. Automobile EP 1 IL 2 L/R ,420 7, ,896 9, ,004 10, ,350 10, ,182 10, Guarantee EP 1 IL 2 L/R , , , , Fire EP 1 IL 2 L/R Long-term Billion won, % Billion won, % EP 1 IL 2 L/R ,255 18, ,038 24, ,915 29, ,419 37, ,601 39, Marine Billion won, % Billion won, % EP 1 IL 2 L/R Others Billion won, % Billion won, % Note : 1Earned Premium, 2Incurred Losses Annuity / Retirement insurance is included in Long-term insurance Source : FSS, Financial Statistics, Monthly Auto Insurance Statistics(Automobile) EP 1 IL 2 L/R ,063 2, ,498 3, ,915 3, ,482 3, ,204 4,

14 The "Big Four" companies (Samsung, Hyundai, Dongbu, and LIG) accounted for roughly 70.2 percent of the total written premium in the non-life insurance market. In 2013, Samsung F&M had the largest share, 25.7 percent, followed by Hyundai M&F with 16.3 percent, Dongbu F&M Insurance with 14.7 percent, and LIG insurance with 13.5 percent. Written Premium and Market Share by Non-Life Insurance Company, 2013 Billion won Company Written Premium Share(%) Samsung 17, Hyundai 11, Dongbu 10, LIG 9, Meritz 4, Hanwha 4, Heungkuk 2, Lotte 2, Nonghyup 2, SGIC 1, AXA MG AIG Hicardirect The-K Others Total 69, Note : 1.Others include ERGO Daum, Ace American, First American, FEDERAL, Mitsui Sumitomo, Korean Re 2.Ceded and assumed premium are excluded in Written premium Source : KIDI, Monthly Insurance Statistics 2013 Written Premium by Insurance Company Note : Others include ERGO Daum, Ace American, First American, FEDERAL, Mitsui Sumitomo, Korean Re, MG, AIG, SGIC, The-K, Hyundai Hicar Direct z - 8 -

15 2. Non-Life Insurance Expense by Line of Business In 2013, as shown in the table below, expenses incurred by all insurance lines except Automobile insurance have increased. Growth rates of the expenses by Long-term and Marine insurance showed a considerable increase, which was higher than eight percent compared to the previous year. Expenses by Line of Business Billion won Automobile % Long-term % Guarantee % Marine % Fire % Others % Total , , , , , , , , , , , , , , , , , , , ,829 Notes : 1. Long-term insurance included Annuity 2. % is annual growth change 3 Claim survey fee is excluded in operating expenses in accordance with IFRS basis Source : FSS, Financial Statistics Trends in Expense by Line of Business - 9 -

16 Among non-life insurances, Automobile, Long-term and Marine showed a deficit for 2013, while Guarantee and Fire insurance recorded a surplus. Automobile and Long-term insurance have underperformed for the recent five years. Underwriting Results by Line of Business Billion won Notes : 1 Automobile % Long-term % Guarantee % Marine % Fire % Others % Total , , , , , ,246 Long-term insurance includes Annuity. 2. Underwriting results(operating income) = earned premium - incurred losses - net expenses 3. % is annual growth rate Source : FSS, Financial Statistics, KIDI, Automobile Insurance Yearbook Trends in U/W Results by Line of Business

17 Chapter 3 : The Korean Automobile Insurance Market 1. Number of Registered Vehicles The number of vehicle registration has constantly increased for the five years, having grown by 2.8 percent, including 2.6 percent in private and 7.0 percent in commercial vehicles compared to the previous year. Because of the economic uncertainty, growth of registered vehicles had declined in 2011 and 2012, but since 2013, it has increased as the economic environment emerged from recession. Private Vehicle Commercial Vehicle Number of Registered Vehicles Thousand, % ,395 16,967 17,426 17,818 18, ,011 1,052 1, ,325 17,941 18,437 18,871 19,401 Total Notes : 1. Figures in each second raw of the vehicles indicate annual growth change. 2. Motorcycles and trailers excluded. Source : Ministry Of Construction and Transportation(MOCT) As shown in the pie chart below, private vehicles had the largest share with 77.8 percent in 2013, followed by trucks with 16.9 percent, and buses with 5.0 percent. Trends in number of registered vehicles 2013 Types of Vehicles Note : Motorcycles and trailers excluded. Source : MOCT Note : Motorcycles and trailers excluded. Source : MOCT

18 2. Written Premium and Incurred Losses by Line of Automobile Insurance The size of written premium in private automobile insurance has shrunk since 2011 and recorded 7,820 billion won in The loss ratio in private automobile insurance increased by 78.2 percent, which was the second highest record for the five years. Billion won, % Private Automobile Insurance Written Earned Premium Premium Incurred Losses Loss Ratio WP and L/R of Private Auto Insurance ,752 6,664 5, ,424 7,019 5, ,020 7,790 5, ,887 7,951 5, ,820 7,807 6, Note : Loss Adjustment Expenses excluded Source : KIDI, Monthly Automobile Statistics Written premium in business automobiles had steadily increased until 2011, yet since 2011 it has decreased again. The loss ratio increased from 69.6 percent in 2009 to 75.9 percent in Billion won, % Business Automobile Insurance Written Earned Premium Premium Incurred Losses Loss Ratio WP and L/R of Business Auto Insurance ,586 2,586 1, ,769 2,657 2, ,962 2,888 2, ,928 2,952 2, ,920 2,914 2, Note : Loss Adjustment Expenses excluded Source : KIDI, Monthly Automobile Statistics Wwritten premium in commercial automobile insurance recorded 823 billion won in 2013 and grew by 2.9 percent, compared with 800 billion won in

19 The loss ratio was 87.5 percent, signifying a deterioration compared with Billion won, % Commercial Automobile Insurance Written Earned Premium Premium Incurred Losses Loss Ratio WP and L/R of Commercial Auto Insurance Note : Loss Adjustment Expenses excluded Source : KIDI, Monthly Automobile Statistics Written premium in Motorcycle insurance recorded 136 billion, and loss ratio of Motorcycle insurance increased in 2013 after showing a constant decrease until Motorcycle Insurance Written Earned Premium Premium Billion won, % Incurred Losses Loss Ratio WP and L/R of Motorcycle Insurance Note : Loss Adjustment Expenses excluded Source : KIDI, Monthly Automobile Statistics Written Premium by Line of Automobile insurance Private automobile insurance, making up for 66.8 percent, had the largest share of written premium, followed by business automobile insurance with 25.0 percent, commercial automobile insurance with 7.0 percent, and motorcycle insurance with 1.2 percent

20 3. Accident Statistics 3-1. General Accident From 2009 to 2013, the number of car accidents has decreased with certain fluctuations, while the number of registered vehicles has increased for the same period. As a result, the accident ratio dropped from 1.3 percent in 2009 to 1.1 percent in Number of Accidents Accident Number and Accident Ratio Annual change Accident Ratio Number of Registered Vehicles , ,325, , ,941, , ,437, , ,870, , ,400, Notes : 1. Annual change is the growth rate compared to the previous year 2. Motorcycles are excluded from the number of registered vehicles 3. The number of vehicles registered are as at the end of the year. Source : National Police Agency(NPA), Traffic Accident Statistics Trends in Number of Accident and Accident Ratio Case, % Annual change Source : NPA, Traffic Accident Statistics

21 The number of accidents per 10,000 registered vehicles has shown a decrease from 2009 to 2013 with some fluctuations. In 2013 the rate of change was -6.1 percent. Accident Number per 10,000 registered vehicles # of Accidents Case, % (4.7) 106 (-4.5) 101 (-4.7) Notes : 1. Figures in the parentheses indicate annual growth rate 2. Motorcycles are included 3. Construction machinery and farm Machinery are included since 2005 Source : NPA, Traffic Accident Statistics 99 (-2.0) 93 (-6.1) The number of deaths by traffic accident was 5,092 in And the number of injuries was 328,711, showing a slight decrease compared with Fatalities per 100,000 population have continued to fall from 11.5 persons in 2009 to 9.8 persons in Although there have been some fluctuations, as a whole the number of injuries per 100,000 population have declined. Number of Deaths and Injuries Number of Deaths Person Number of Injuries , , , , , , , , , ,711 Source : NPA, Traffic Accident Statistics Number of Deaths and Injuries per 100,000 Population Person Number of Deaths Number of Injuries Source : NPA, Traffic Accident Statistics

22 3-2. Insurance Accident by Coverage The Car Year, accident number in Bodily Injury I (BI I) have increased since BI I Accident ratio was around 6 percent and the Car Year has increased by 15.0 percent, with car accidents increasing by 11.4 percent for the past five years. The accident rate in Bodily Injury II has increased gradually since The accident ratio of Property Damage and Car Year have continuously soared for the five years with some fluctuations. Car year increased by 15.1 percent for the five years while accident number increased by 29.3 during the same period. Both accident number and earned Car Year of Expanded Medical Payments have gradually risen from 2009 to 2013 with some fluctuations, and the accident ratio of expanded medical payments have stayed constant. The accident ratio of physical damage in 2013 recorded 15.7 percent. The number of accidents has decreased by 11.7 percent compared with Such downward trend in accident number since 2010 was due to the introduction of coinsurance policy in physical damage insurance. The accident number of uninsured motorists showed an increasing trend for the five years, reaching its highest in The accident ratio of uninsured motorists was 0.1 percent, recording the same level during the five years. Accident Ratio by Coverage Bodily Inhuty Ⅰ Bodily Inhuty Ⅱ Property Damage Expanded Medical Payments Physical Damage Uninsured Motrorist % Source : KIDI, Annual Automobile Insurance Statistics

23 4. Expenses and Expense Ratio Operating Expenses recorded 2,532 billion won and expense ratio was 21.0 percent in 2013, showing a continuous decrease since Trends in Expenses and Expense Ratio Billion won, % Operating Expenses 2,911 3,184 2,733 2,632 2,532 Expense Ratio Note : Claim survey fee is excluded in Operating Expenses in accordance with Source : FSS, Monthly Financial Statistics IFRS basis Expenses and Expense Ratio in Automobile Insurance

24 5. Underwriting Results In 2010, underwriting results of automobile insurance reached -1,459 billion won, which was the lowest figure for the five years. In 2011 and 2012, such results improved due to the change in the rate making system. However, the underwriting results got worse again in Trends in Underwriting Results Billion won, % Underwriting Results Annual % change Underwriting results have , usually been in negative figures, and the fluctuations in annual underwriting results have been wide and irregular As seen from the left table, in 2013 the result worsened compared to Note : Annual % change is the growth rate compared to the previous year. Source : FSS, Monthly Financial Statistics Trends in Underwriting Results of Automobile Insurance

25 6. Residual Market The residual market continues to provide coverage for those who cannot purchase insurance in the regular market. Although there were some fluctuations, all of written premium and earned premium in the residual market have shown a decreasing trend. Loss ratio of the residual market in 2013 recorded 87.6 percent. Residual Market : Written Premium, Earned Premium, Incurred Losses, Loss Ratio Billion won Written Premium Earned Premium Incurred Losses Loss Ratio(%) Source : KIDI, Monthly Automobile Insurance Statistics Trends in Weitten Premium, L/R of Residual Market

26 7. Acts Related with Automobile Insurance 7-1. Guarantee of Automobile Accident Compensation Act o The Guarantee of Automobile Accident Compensation Act(law no. 1314) was enacted in April 1963 to minimize social problems arising from motor vehicle accidents. o The law provides that if a person who, for his own benefit, places an automobile in operational use injures the life or body of another, he or she is bound to compensate victim(s) for the damage resulted from the operation of the vehicle. To ensure this, the law provides that no one is to operate a motor vehicle unless it is covered by Bodily Injury Liability Coverage I which is compulsory automobile liability insurance. o Guarantee of Automobile Accident Compensation Act has adopted the liability without fault. The burden of proof does not lie with the injured person whether or not the damage is caused by injurer`s willful act or fault. To protect the injured person by uninsured vehicles, unregistered vehicles, and hit-and-run vehicles, the Government Insurance Assessment Plan provides indemnification up to the same amount as does the Compulsory Automobile Liability Insurance. o On Feb. 22, 2005, Insuring Coverage for Property Damage became compulsory and limit of liability of Bodily Injury was raised. Bodily Injury Liability Coverage Property Damage Liability Coverage Death/Permanent Disability (1st Degree) 80 mil. won 100 mil. won Injury(1st Degree) 15 mil. won 20 mil. won Obligated to insure his/her property for 10 million won of indemnity * There are standards for grading Injury and Permanent Disability, respectively. The standards have 14 levels of injury and permanent disability categories for each one

27 7-2. Act on Special Cases concerning the Settlement of Traffic Accidents o In view of the fact that motor vehicles became essential in people`s lives, the Act on Special Cases concerning the Settlement of Traffic Accidents(law no.3490) was enacted on Dec. 31, 1981 for the purpose of rapid recovery for the damage caused by a car accident and increasing benefits of the public. o According to the Act, a victim cannot file a law suit with the court in accordance with Article 4 of the Act as long as a person insures him/herself for all amounts the victim can fully be compensated. In other words, the person must insure him/herself for Bodily Injury Liability Coverage I, Bodily Injury Liability Coverage II that can indemnify the victim for unlimited amount of liability. But there are exceptions for this. They are death of the victim, hit-and-run accident, and ten cases of severe violation of traffic law; traffic light violation, crossing the center line, speed limit violation, violation of overtaking prohibition, violation of traveling in intersection, violation of pedestrian protection, unlicensed driving, drunk driving, encroaching upon the sidewalk, starting a vehicle with the door open (violation of passenger protection) o On Dec. 22, 2009, the Act was amended. There was an addition to exceptions for indemnification, and; it is called "School Zone Accident". A driver who causes an injury to a child at the zone of Child Protection(School-zone) can not be indemnified for his/her behavior Insurance Business Act o The purpose of this Act is to guide and supervise the insurance business, efficiently protect the rights and interests of the policyholder, the insured and other interested persons concerned and thus to contribute to the sound development of the insurance business and the balanced growth of the national economy. o Insurance Business Act was enacted and promulgated on Jan. 15,

28 o Paid-in capital raised (Life Insurance : 0.2 billion won 10 billion won, Non-life Insurance : 0.3 billion won 30 billion won) and Insurance Guarantee Fund established on Dec. 31, 1988 o Qualification of shareholder limited in order to actively cope with the trend in globalization and to strengthen competitiveness in the financial industry, and paid-in capital raised to 30 billion won from 10 billion won on Aug. 28, o In the past, the Advisory Organization (KIDI) made premiums by adding pure premium to loading. On Feb. 5, 1999, the Act was amended. Since, the Advisory Organization (KIDI) has provided only pure premiums, the insurers have set their own loadings. o On Jan. 21, 2000, the Act provided that an insurance company, managing a certain insurance sector of the insurance businesses, could select a different paid-in or foundation fund over the scope of 10 billion won. o On May 29, 2003, the Act provided that paid-in capital of tele-marketing insurance companies was set at two thirds of that of other general insurance companies. o On Sep 1, 2008, the soliciters are permitted cross-selling of insurance under a new sales scheme. It allowed non-life insurers to sell life insurance products and life insurers to sell property and casualty insurance schemes Automobile Insurance Plan(AIP) o Comprehensive automobile insurance is voluntary so that the insurers can select whether or not to underwrite a policy, based on their underwriting policies and procedures. (Insurance companies normally evade those who have excessively high loss ratios.) o However, this caused social problems. Underwriting policies of insurance companies were against the publicity of the automobile insurance to protect the bona-fide third party

29 o Accordingly, non-life insurance companies concluded an agreement, Agreement of Joint Underwriting, to provide automobile insurance coverage to those who are unable to obtain coverage in the voluntary market and to protect the victim. This plan became effective on April 24, o As the number of people who are unable to obtain coverage in the voluntary market had rapidly increased, the Detailed Operational Directives for the Implementation of Agreement of Joint Underwriting were made on Feb. 10, From May 1, Their distribution was automatically conducted by KIDI`s computer network. o In a view of the application of premiums, KIDI has made premiums for the residual market that are added extra percentage points compared to other premiums in the voluntary market, considering the risk of accident and the features of joint underwriting

30 8. Ratemaking System 8-1. Ratemaking o The Applied premium of automobile insurance is calculated by the base premium and various rates that depend on characteristics of the automobile and the insured. Base premium is determined by usage, type of automobile, coverage and the limit of liability for each coverage. In addition, there are many kinds of rates considered to calculate the insurance price; merit-demerit rate, insured characteristic rate, rate on particular contract and special rate etc. The applied premium is calculated as follows. Applied premium = Base premium Insured characteristic rate Merit- Demerit rate Special rate Other rates o Merit-demerit rate is applied to fleet risk and non-fleet risk respectively. This rate is determined by accident records and loss records of the insured. The rate starts from 100% and ranges from 200% (surcharge) to 30% (discount). o Insured characteristic rates reflect previous auto insurance records and traffic violation records. Rate by previous auto insurance experience is the highest for a beginner. Rate by traffic violation is determined by traffic violation records of the insured during the valuation period. Surcharge rates applied to each traffic violation type which is as follows. Group Traffic Violation Type Rate 1. Unlicensed Driving 20% 1 2. Leaving Scene of Accident 20% 3-1. Driving under the influence (1 times) 10% Surcharge 3-2. Driving under the influence (more than 2 times) 20% Group 4-1. Traffic light violation, Failing to Yield Right of Way, 5% 2 Speeding over posted limit (2 ~ 3 times) 4-2. Traffic light violation, Failing to Yield Right of Way, 10% Speeding ver posted limit (more than 4 times)

31 o Rate on a particular contract reflects coverage characteristics such as who is qualified to drive or who will drive. When the policy excludes drivers under the age of twenty-one or twenty-six, lower premium will be applied. Furthermore when drivers are limited to named insured and relatives, the premium will be discounted. Especially special clauses for a family or a married couple are usually selected. o Special rate applies to the special risk which has different automobile safety devices or different characteristics based on use or type of car. For example, there are rate for cars equipped with ABS, sports and sports-type cars and so on Improvement in Ratemaking System o The improved Bonus-malus system has been applied since January, The period that merit-demerit rate reaches to the highest(200%), and the lowest(40%) is liberalized to each company according to the risk of the insured. And safeguards like Guard grade system on long non-accident are established to prevent policyholders' confusion. It is expected to enhance the degree of equity among insureds and solve the problem of nonacceptance of high discounted group. * In 2011, classes of Bonus-malus system are subdivided into 23 classes and the number of classes will grow in 29 from 2012 to The rate for the 29th class will be 30%. In case the policyholder makes an insurance contract in condition of the 23rd class in 2011, he is subject to 38%, and the policyholder in condition of the 24th class in 2012, he is subject to 36%. o Classification based on a model of car is adopted for physical damage of private automobile in April, Private automobiles are sorted to 262 models and grouped into 21 levels on the basis of relative loss ratios. Each company can freely determine one's rate. But size of the entire written premium must be kept unchanged. This will improve the degree of equity and make manufacturers to reduce the prices of auto parts. o The policyholder can purchase the mileage rider charging insurance fees

32 according to mileage from December, The policyholder can get a maximum discount rate of 13 percent. o There is no classification based on territorial area. But there have been significant differences in loss ratio by territorial area, KIDI collected many data to apply them in premium rating Deregulation on Insurance Rate Approval System o Before April 1st Prior approval system - Insurance companies can use the rate provided by KIDI o Since April 1st File & use system - Insurance companies can calculate additional premium determined according to their own business results. But they shall use the pure premium provided by KIDI o Since August 1st File & use system - Every insurer can make their own premium. The pure premium provided by KIDI is only reference rate for insurance companies. o Since September Use & report system Insurance companies can use the changed rates freely. After using the rates, they must report the information concerning rate revision to the authorities on a quarterly basis. But in some limited cases like a highly fluctuated rate change or the introduced new rating factor, they should have the file & use system for the new rates

33 Year < The Annual Plan of Insurance Rate Liberalization > Bonus-Malus Rate Non-Fleet Fleet Diriving Experience Rate Liability Base Premium ~ ~10 3~ ~20 6~20 (Unit : %) Flex Rate (±α%) 00.4 Liability Comprehensive Comprehensive Liability Comprehensive Liability Comprehensive Abolished Abolished Abolished Abolishing Flex Rate Liberalization of Loading Charge Abolishing Flex Rate Liberalization of Loading Charge Liberalization of Pure Premium of Multi-personnel Vehicle Commercial Auto Policy Liberalization of Pure premium Liberalization of Pure premium Personal & Business Auto policy Liberalization of Pure premium Liberalization of Pure premium Liberal Rate

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35 APPENDICES Appendix I. Appendix II. Korea`s Automobile Insurance Glossaries Appendix III. Special Clauses Appendix IV. KIDI's Brief History & Members Appendix V. KIDI Organizational Chart

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37 APPENDICES Appendix I. Korea`s Automobile Insurance Automobile Insurance Products Private Automobile Insurance Bodily Injury Liability Coverage I Compulsory Business Automobile Insurance Property Damage Liability Coverage Insurance Auto Insurance Commercial Automobile Insurance Two-wheeled Motor Vehicle Insurance Farm Machinery Insurance Bodily Injury Liability Coverage II Expanded Medical Payments Coverage Uninsured Motorist Coverage Physical Damage Coverage Voluntary Insurance - Others - Driver`s Insurance Motor Trader Insurance Automobile Insurance in Foreign Currency Motor Vehicle to be Insured by Insurance Product o Private Automobile Insurance o Business Automobile Insurance o Commercial Automobile Insurance o Two-wheeled Motor Vehicle Insurance o Farm Machinery Insurance All private passenger vehicles owned by an individual or a self-employed person All passenger vehicles, official vehicles, and construction machinery except for private automobiles All commercial vehicles, construction machines, and rental vehicles All two-wheeled motor vehicles and motorbikes Cultivators, farm tractors, and combines

38 Appendix II. Glossaries Private Automobile Insurance Privately-owned motor vehicles with a seating capacity of ten or less persons can be insured. A policyholder can select one or more of six types of coverage(bodily Injury Liability Coverage I, Bodily Injury Liability Coverage II, Property Damage Liability Coverage, Expanded Medical Payments Coverage, Uninsured Motorist Coverage, and Physical Damage Coverage) and insure him/herself or his/her property. Bodily Injury Liability Coverage I and Property Damage Liability Coverage are compulsory to all automobiles. Private Automobile Insurance Plus Private Automobile Insurance Plus is a high quality product that expands the scope of indemnification for bodily injury of the insured and damage of the insured vehicle. Business Automobile Insurance All non-commercial motor vehicles except for privately-owned motor vehicle with a seating capacity of ten or less persons can be insured. A policyholder can select one or more of six types of coverage(bodily Injury Liability Coverage I, Bodily Injury Liability Coverage II, Property Damage Liability Coverage, Expanded Medical Payments Coverage, Uninsured Motorist Coverage, and Physical Damage Coverage) and insure him/herself or his/her property. Bodily Injury Liability Coverage I and Property Damage Liability Coverage are compulsory to all automobiles. Business Automobile Insurance Plus There are four types of motor vehicles that can be insured ; privately-owned motor vehicle of the third class van, light-weight van or privately-owned motor vehicle of the fourth class truck, light-weight truck. This is a high quality product that expands the scope of indemnification for bodily injury of the insured and damage of the insured vehicle. Commercial Automobile Insurance All commercial vehicles can be insured. A policyholder can select one or more of five types of coverage(bodily Injury Liability Coverage I, Bodily Injury Liability Coverage II, Property Damage Liability Coverage, Expanded Medical Payments, Physical Damage Coverage). Bodily Injury Liability Coverage I,

39 Bodily Injury Liability Coverage II and Property Damage Liability Coverage are compulsory. Two-wheeled Motor Vehicle Insurance Two-wheeled motor vehicle and motor bike can be insured. A policyholder can select one or more of six types of coverage(bodily Injury Liability Coverage I, Bodily Injury Liability Coverage II, Property Damage Liability Coverage, Expanded Medical Payments Coverage, Uninsured Motorist Coverage, and Physical Damage Coverage) and insure him/herself or his/her property. Bodily Injury Liability Coverage I and Property Damage Liability Coverage are compulsory. Farm Machinery Insurance Farm machinery such as cultivator, farm tractor, and combine can be insured. A policyholder can select one or more of four types of coverage(bodily Injury Liability Coverage, Property Damage Liability Coverage, Expanded Medical Payments Coverage, Farm Machinery Damage Coverage) and insure him/herself or his/her property. Driver`s Insurance A person who drives a vehicle irrespective of owning a vehicle can be insured. The insured receives indemnification for damage caused by a car accident. Motor Trader Insurance A motor trader, who is a person or persons actively operating a formal business on a full or part-time basis for profit, either selling (used) vehicles or providing a service relating to repair or maintenance of motor vehicle, can insure his/her property. This insurance compensates for damage caused by the motor trader during the use or management of vehicle. Automobile Insurance in Foreign Currency Foreigner-owned or foreign institution-owned motor vehicle, U.N. motor vehicle can be insured. A policyholder can insure him/herself or his/her property among four types of coverage(bodily injury I, Property Damage, Physical Damage, Medical Expenses). Premiums and insured amount are marked by USD, and its policy is in English. Bodily Injury Liability Coverage I This coverage insures the insured for all amounts which the insured may have

40 to pay as a result of he/she being legally liable for a person`s death or injury, or damage to a person`s property resulted from an car accident. This coverage is compulsory to those who want to insure him/herself. Bodily Injury Liability Coverage II The coverage insures the insured for all amounts exceeding the limit of liability of the compulsory automobile liability insurance. Property Damage Liability Coverage The coverage indemnifies the insured against property damage of the third party resulted from a car accident. Expanded Medical Payments Coverage The coverage insures the insured or his/her family member(s) for the insured`s or his/her family member`s death or bodily injury. Physical Damage Coverage The coverage insures the insured vehicle for all damages resulted from physical damage, car theft, fire, or flood. Uninsured Motorist Coverage The coverage can be insured as long as the insured already has Bodily Injury I, Bodily Injury II, Property Damage, and Personal Accident Coverage. The coverage insure the insured for his/her death or bodily injury caused by an uninsured vehicle. FY (Fiscal Year) The fiscal year for the Korean insurance industry begins on January 1 and ends on December

41 Appendix III. Special Clauses Special Clauses for Family Driving only An insurer shall indemnify if the insured limited the drivers of the automobile specified in the policy to the insured and his(her) family members only. However, this will not apply to the Bodily Injury Liability I Coverage. The term of family members in this refers to 1 parents or foster parents, 2 parents or foster parents of the spouse of the named insured, living together, 3 legal spouse, or spouse in a real martial relationship, 4 child born in a legal or real martial relationship, foster child, or 5 daughter-in-law Special Clauses for Married-couple Driving only An insurer shall indemnify if the insured limited the drivers of the automobile specified in the policy to the insured and his(her) spouse only. However, this will not apply to the Bodily Injury Liability I Coverage. The term of spouse in this refers to martial relationship. legal spouse, or spouse in a real Special Clauses for Driving by age of drivers For example, in case that the insured limits the drivers of the automobile specified in the policy to those of age 21 or older only, the insurer shall indemnify as prescribed in the clauses. However, this will not apply to the Bodily Injury Liability I Coverage. Special Clauses for Driving of Other Automobile In case that the insured suffers a loss incurred by the legal liability against an other party arising out of the bodily injury accident or property damage accident occurred, or that the insured suffered bodily injury while the insured was driving another automobile(except for the accident occurred while parking or stopping the automobile), the insured shall consider the other automobile driven by the insured as the insured automobile covered by Bodily Injury Liability II Coverage, Property Damage Liability Coverage or Expanded Medical Payment Coverage of General Clauses, and indemnify as prescribed in the clauses

42 Appendix IV. KIDI's Brief History & Members Established Korea Non-life Insurance Rating Association Insurance Business Law amended to include a provision regarding the legal background for the establishment of an insurance rate-making organization Officially authorized to establish Korea Insurance Development Institute (KIDI) Established Korea Insurance Development Institute(Korea Non-life Insurance Rating Association dissolved) Established Korea Automobile Insurance Repair Research & Training Center as a subsidiary of Korea Insurance Development Institute Designated a business partner responsible for managing Insurance Information Network Insurance Research Center established Held jointly EEAC (East Asia Actuarial Committee) Opened KIDI Digital Management System Designated as an organization to provide the insurance statistics (published Annual Insurance Statistics, Insurance Statistics Yearbook) Designated Insurance Development Research as an academic journal Designated as the organization operating insurance examinations for actuary and claim adjuster Opened KIDIPOOL (Knowledge Management System) th Anniversary of Korea Insurance Development Institute Opened KIDI Consortium Retirement Payment System (DB type) Opened KIDI Consortium Retirement Payment System (DC & IRA type) Korea Insurance Research Institute(KIRI) estabilished (Insurance Research Center is developed and spcialized) Korea Insurance Research Institute (KIRI) was founded as a new corporation Eastablished ICPS(Insurance Claims Poolins System) Claims Map system Opened AIPIS (Auto Insurance Premium Integrated check System) Opened Dormant Insurance Claims Inquiry System

43 Member Companies Life Insurance Hanwha Life Insurance Co., Ltd. Alianz Life Insurance Co., Ltd. Samsung Life Insurance Co., Ltd. Heungkuk Life Insurance Co., Ltd. Kyobo Life Insurance Co., Ltd. Hyundai Life Insurance Co., Ltd Shinhan Life Insurance Co., Ltd. Dongbu Life Insurance Co., Ltd. Dongyang Life Insurance Co., Ltd. MetLife Life Insurance Co., Ltd. ACE Life Insurance, Ltd. PCA Life Insurance Co., Ltd. WOORIAVIVA Life Insurance Co., Ltd. KDB Life Insurance Co., Ltd. Mirae Asset Life Insurance Co., Ltd. KB Life Insurance Co., Ltd. LINA Life Insurance Co. Ltd. AIA Life Insurance Co., Ltd. Prudential Life Insurance Co., Ltd. ING Life Insurance Co., Ltd. Non-Life Insurance Meritz Fire & Marine Insurance Co., Ltd. Hanwha Non-life Insurance Co., Ltd. Lotte Non-life Insurance Co., Ltd. MG Non-life Insurance Co., Ltd. Heungkuk Fire & Marine Insurance Co., Ltd. Samsung Fire & Marine Insurance Co., Ltd. Hyundai Marine & Fire Insurance Co., Ltd. LIG Insurance Co., Ltd. Dongbu Fire & Marine Insurance Co., Ltd. American Insurance Group, Inc. Seoul Guarantee Insurance Co., Ltd. AXA Non-life Insurance Co., Ltd. The-K Non-life Insurance Co., Ltd. ERGO Daum Direct General Insurance Co., Ltd. Federal Insurance Company Korea ACE American Insurance Company Mitsui Sumitomo Co., Ltd. Hicar Direct Auto Insurance Co., Ltd. Nonghyup Property & Casualty Insurance Co., Ltd. HANA Life Insurance Co., Ltd. CARDIF Life Insurance Co., Ltd.. IBK Insurance Co., Ltd. Nonghyup Life Insurance Co., Ltd. Kyobo Lifeplanet Insurance Company

44 Appendix V. KIDI Organizational Chart

45 Korea Insurance Development Institute 38, Gukjegeumyung-ro 6-gil, Yeongdeungpo-gu, Seoul, , Korea TEL FAX