Analysis on the Effects of Foreign Cars' Increase on the Loss Ratio of Automobile Insurance and its Policy Implications

KIM DAEHWAN; Kim Hunsoo

doi:10.23842/jif.2017.28.3.001

The purpose of this paper is to empirically examine whether the government’s policy on automobile insurance premium in 2015(surcharging special rate on luxurious automobiles) is justified under the circumstance of rapidly increasing foreign cars. The paper applies the fixed effect model by using monthly penal data of insurance companies for three years from 2012 to 2014. The empirical result demonstrates that in the case of ‘coverage for damage to your auto’, the increase in the proportion of foreign car raises the loss ratio. In the case of ‘liability coverage on property damage’, however, the empirical result does not show statistically significant relationship between the increase in the proportion of foreign cars and the loss ratio. The results of this paper support the government’s policy implemented in 2015 on automobile insurance premium regarding special rate surcharging on luxurious (foreign) automobiles.

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