A steep hike in the South Korean minimum wage has worried insurers and credit card companies, with wage hikes in recent years affecting profitability.
With higher wages, insurers in Korea are worried that they will have to pay out more, despite not raising premiums, the Korea Times reported.
“As the daily wage rises further following the minimum wage hike, the average benefit the insurance company pays to the insured will increase. Insurers will need to raise insurance premiums,” Jeon Yong-sik, director at Korea Insurance Research Institute, said.
According to Jeon, some insurance payouts, such as for when the insured is unable to work following an accident, are computed based on the daily wage, which is in turn affected by the minimum wage. It also applies to those without fixed income, such as housewives or individuals without regular work.
The Minimum Wage Council will raise the minimum hourly wage by 10.9% to KRW8,350 (US$7.40) next year, following a 16.4% increase this year. Since 2016, daily wages have risen by an average of 5.2% annually.
While insurers need to raise insurance premiums, it is not easy, as they have to contend with public perception and regulation. For example, motor insurance premiums in Korea fell by 0.13% in the past decade, despite rising costs, due to market competition and regulatory pressure.
“It is true that insurance companies should also enhance efficiency, but they should be allowed to raise insurance premiums following a rise in their costs,” said Jeon.
Meanwhile, credit card companies are forced to lower commissions charged to small businesses and merchants. These small businesses have complained that the steep wage hikes made it hard to operate sustainably.
“We understand the hardship the small merchants are going through, but we've lowered down credit card commissions nine times since 2007,” a representative of the Credit Finance Association said. “The private companies have to sustain all the damage.”
