SEOUL – South Korean insurance companies have begun compensating policyholders for vehicle damages caused by balloons filled with trash, launched from North Korea, industry sources reported on Wednesday.
Typically, standard insurance policies in South Korea exclude damages stemming from acts of war or external provocations. However, recent incidents have prompted insurers to reconsider their stance.
“It appears insurance companies debated over whether to offer compensation to customers,” an industry insider told the Korea Times.
Local reports revealed that an insurance firm compensated a policyholder in Ansan, Gyeonggi Province, with KRW 330,000 after a North Korean balloon damaged the windshield of the policyholder’s vehicle on June 2. The total repair cost was KRW 530,000 (approximately $385).
According to policy terms, the policyholder was responsible for KRW 200,000, with the insurance company covering the remaining KRW 330,000.
“This marks the first instance of a car insurance policyholder receiving benefits for damage caused by North Korea’s balloon offensive,” the source said.
For privacy reasons, details about the insurance company and the policyholder were not disclosed.
Another industry source mentioned that a separate car insurance firm in Seoul’s Dongdaemun District received a similar claim.
“The company is handling the issue in accordance with the contract,” the source noted.
South Korean Insurers Brace for CRE Valuation Declines
In other news, Fitch Ratings has assessed that South Korean insurers are well-prepared to handle declines in the valuations of their international commercial real estate (CRE) investments and related exposures.
The firm does not anticipate these declines will significantly impact the ratings of South Korean insurers in the short term.
Challenges in Overseas Commercial Real Estate
Higher interest rates and changes in work and consumption patterns post-COVID-19 have created potential for impairment losses among Korean insurers with CRE holdings. Despite this, Fitch expects the impact on profitability to be relatively minor. The increased release of contractual service margins (CSMs), bolstered by strong underwriting performance, is expected to sustain profitability levels despite potential fluctuations in investment returns, including possible CRE-related losses.
Data from the Financial Supervisory Service (FSS) indicated that as of the end of September 2023, Korean insurers’ foreign CRE exposure stood at KRW 31.9 trillion, the highest value exposure within the Korean financial sector. This exposure represents about 3% of the industry’s total invested assets and approximately 12% of insurers’ total shareholder equity, considering CSMs net of tax.
