Flood damage to vehicles during torrential rain to hit insurers

Over a thousand luxury cars have been damaged during the record torrential rainfall that mostly struck wealthy districts of southern Seoul earlier this week, wreaking havoc on non-life insurers’ profitability.

According to insurance industries, over 1,500 cases of flood damaged high-end cars due to Monday’s deluge have been submitted to major non-life insurance companies, including Samsung Fire & Marine Insurance, KB Insurance, DB Insurance, Hyundai Marine and Meritz Fire.

Many super-luxury cars, such as Ferraris, Porsche Panameras, Mercedes-Benz S-Class and Bentley vehicles, which cost in the hundreds of thousands of dollars range here, have been reported to indemnity insurers for flood damage. Hundreds of cases of other highend imported cars like BMWs, Audis and Volvos, are also included on the list.

As of 8 a.m. on Wednesday, a total of 2,371 cases of flood damaged vehicles have been reported to Samsung Fire & Marine Insurance. Nearly 40 percent of the reported cases, or 939 cases of them, were high-end imported cars, which alone would cost 25.14 billion won ($19.1 million) for coverage. At DB Insurance, a total of 1,247 cases of flood damaged vehicles had been reported as of midnight on Tuesday, and 397 of them were luxury imported cars. When calculating other major non-life insurers, it is estimated that over 1,500 cases of expensive imported cars have been reported.

Insurance companies’ expected payments covering the flood damaged vehicles are snowballing, as a significant portion of them were luxury cars. Due to the coverage that these non-life insurers are supposed to pay, the companies’ profitability cannot avoid being pressured in the aftermath of the torrential rains.

Industry insiders say it is a rare case in which most of the flood damage is focused on the wealthy Gangnam District, where the presence of luxury cars is much greater compared to other areas.

“It is an extremely rare case that numerous luxury imported cars are simultaneously reported for flood damage. Since each car costs a lot, they cannot help but greatly impact insurers’ loss ratios,” a source at a local insurer said.

When calculated altogether, over seven thousand vehicles have been flood damaged over the two days from Monday to Tuesday in Seoul and nearby Gyeonggi Province due to the heavy rain. A total of 6,853 cases of flood damaged vehicles were reported by 9 a.m. Wednesday at 12 local insurance companies, which are estimated to total over 85.5 billion won in damages.

Local non-life insurers’ automobile insurance products have been stably profitable during the pandemic era, with most of the firms’ loss ratios standing in the 70-percent range in 2021. Given that insurers’ break-even points for automobile insurance plans are estimated to be in the 80-percent range in terms of their loss ratios, most major insurance firms have been profitable during the past year.

That’s why market watchers had expected to see a discount in automobile insurance premiums during the second half of this year. But due to the damage from the torrential rains, the companies are expected to be hit severely in their third quarter earnings.