Motorists in for insurance shock
21/01/2007 21:13  - (SA)  

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Johannesburg - Consumers are in for a significant increase in car insurance premiums, although not everyone will be hit equally hard.

Premiums on car insurance are expected to climb between 10% and 25% because of a host of negative factors that could bring about a whole new approach to car insurance - an approach that could have a significant impact on the underwriting margins of insurers.

Mutual & Federal issued a profit warning last week, saying that it expected headline earnings a share to be up to 50% lower in the year to December compared with the previous year.

Mutual & Federal blamed lower underwriting profits, reduced returns on listed equities and the payment of a special dividend for the expected profits fall.

Ian Jurgensen, executive general manager of business services at Mutual & Federal, said nowadays many other factors had an impact on the calculation of premiums on car insurance.

Previously, it was enough to calculate a premium on the residential area of the policy holder, the age of a motorist and the value of the car.

Now, other factors also play a role - such as whether the car was imported or made locally, the type of vehicle, the experience of the motorist (instead of age) and even where the car was parked.

For consumers, higher premiums are always bad news, but for insurers the changes mean a huge administrative burden and pressure on their underwriting profit margins.

Jurgensen says the experience of motorists plays a bigger role in calculating the premium, because nowadays it is not only young people who are getting their driver's licence for the first time.

Growing wealth means a bigger group of people can now afford a car for the first time.

"An identity document is therefore not enough - insurers must know how long the person has been driving"

Imported cars are also no longer the most-expensive and exotic cars. Even small, entry-level cars that retail for between R80 000 and R100 000 are being imported.

These cars are also technologically advanced and even the smallest are fitted with airbags, which pushes up repair costs.

"The repair costs on some cars of R80 000 after a small accident could add up to R15 000 and on others just R8 000. This needs to be taken into account when calculating the cost of premiums," said Jurgensen.

Another huge factor behind increased premiums is that, with an increased number of cars on SA roads, the infrastructure deteriorates.

The potholes are becoming deeper, and increasingly more traffic lights don't work - a recipe for more accidents.

Also, it is costing insurers a lot to hire cars in instances where the policy holder has the option of a courtesy car.