Financial regulators in South Korea are rolling out a series of measures aimed at easing household costs, but the burden is increasingly being absorbed by financial companies. Insurers and card issuers say they support the policy goals, yet warn that added obligations are squeezing profitability at a time when their core businesses are already under strain.
The Financial Services Commission on the 27th introduced a new auto insurance rider offering discounts for drivers who follow a vehicle-use restriction scheme. The measure is intended to respond to volatile global oil prices and encourage energy conservation. Industry officials, however, said it will effectively function as pressure to cut premiums, because insurers are expected to participate and premium revenue falls as enrollment rises.
Under the rider, auto insurance premiums are discounted by 2% a year. Regulators estimate about 17 million vehicles could qualify. By simple calculation, that would shift roughly 240 billion won in costs to insurers.
The added discount is likely to weigh on earnings, as auto insurance loss ratios are already above break-even levels. Major nonlife insurers have seen underwriting results drop sharply due to weak performance in indemnity health insurance and rising auto loss ratios. The combined insurance profit of four major nonlife insurers — Samsung Fire & Marine Insurance, Hyundai Marine & Fire Insurance, DB Insurance and KB Insurance — totaled 3.5782 trillion won last year, down 34.8% from the previous year’s 5.4892 trillion won.
Card issuers are also facing heavier pressure. As regulators urge companies to expand benefits such as fuel discounts to ease oil-related costs, some products are being pushed into a loss-making structure, industry officials said. Performance has been weakening: the combined net profit of eight dedicated card companies — Samsung, Shinhan, Hyundai, KB Kookmin, Lotte, Hana, Woori and BC — fell 8.9%, or 230.8 billion won, to 2.3602 trillion won last year from 2.5910 trillion won a year earlier.
“Each time there is a crisis, financial companies have been mobilized as tools to carry out policy,” an industry official said. “We want to participate, but conditions are not easy.” The official added that the burden is growing as volatility in interest rates and exchange rates increases.
* This article has been translated by AI.
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