Why it became compulsory
On 4 April 1963, as cars spread, Korea required vehicle owners to buy liability cover so crash victims would be paid regardless of the driver's wealth. The original limits were tiny, 100,000 won for a death and 70,000 for injuries; today they are 150 million and 30 million won. Permanent disability was added in 1980 and compulsory property cover in 2003 (Korea Insurance Research Institute, 2021).
What the policy contains
- Bodily injury I (compulsory): up to 150m won per death or disability, 30m per injury.
- Bodily injury II: anything above that, often unlimited.
- Property damage: compulsory to 20m won, higher by choice.
- Own injury, uninsured motorist, own vehicle: optional.
Criminal liability is governed by Korea's special traffic-accident act and civil damages by tort law.
Premiums and penalties
Premiums depend on bonus-malus grade, driver age and scope, mileage and dash-cam discounts, and car value. Since 28 July 2022, drunk, unlicensed or hit-and-run drivers must repay the full compulsory limit themselves.
The economics
Rothschild and Stiglitz (1976) showed how deductibles sort risky from safe drivers. Chiappori and Salanié (2000) found little evidence of adverse selection among young French drivers, while Abbring et al. (2003) used bonus-malus histories to detect moral hazard. Peltzman (1975) argued safety rules invite riskier driving, but Cohen and Einav (2003) found seat-belt laws saved lives with little offset.
Losses and fraud
Korean auto insurers lost about 7.08 trillion won cumulatively in 2011–2020, and 41.8% of insurance fraud detected in early 2020 by value involved auto policies (Korea Insurance Research Institute, 2021). Padded claims raise everyone's premium.
FAQ
- Is basic liability enough?
- It satisfies the law, but you pay anything above the limits yourself, so most drivers add bodily injury II.
- Can foreigners insure a car in Korea?
- Yes, with a Korean or valid international license; premiums depend on driving record.
Sources reviewed: 2026-11-02
References
- Rothschild, M., & Stiglitz, J. (1976). Equilibrium in competitive insurance markets: An essay on the economics of imperfect information. The Quarterly Journal of Economics, 90(4), 629–649. Classic model of insurance markets when insurers cannot see risk.
- Chiappori, P.-A., & Salanié, B. (2000). Testing for asymmetric information in insurance markets. Journal of Political Economy, 108(1), 56–78. Tests whether more coverage goes with more accidents among young French drivers.
- Abbring, J. H., Chiappori, P.-A., & Pinquet, J. (2003). Moral hazard and dynamic insurance data. Journal of the European Economic Association, 1(4), 767–820. Uses bonus-malus records to detect moral hazard.
- Peltzman, S. (1975). The effects of automobile safety regulation. Journal of Political Economy, 83(4), 677–725. Argued safety rules may be offset by riskier driving.
- Cohen, A., & Einav, L. (2003). The effects of mandatory seat belt laws on driving behavior and traffic fatalities. The Review of Economics and Statistics, 85(4), 828–843. Finds seat-belt laws cut deaths with little offsetting behavior.
- 국가법령정보센터. (n.d.). 자동차손해배상 보장법. Full text of the Compulsory Motor Vehicle Liability Security Act.
- 보험연구원. (2021). 자동차보험의 역할 [CEO Report 2021-4]. KIRI report on coverage structure, history and losses.