SA car insurance in crisis

2015-08-13 06:00
PHOTO: sourced

The insurance industry currently insures around R46?billion worth of cars

PHOTO: sourced The insurance industry currently insures around R46?billion worth of cars

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LEADING voices from the South African transport industry have come out in solidarity against the cumulative high risk of vehicle ownership, highlighting the need for huge changes in the motor insurance industry.

There are an estimated 10 million vehicles on SA’s roads that are financially exposed through a legacy of low-insurance penetration, but the insurance industry is struggling to keep costs down, adding the risk of further distancing from its customers.

These factors include the risk of human collateral with the country’s annual road death toll which is approaching 18 000, reports Mediaweb’s Chad Fichardt.

Seamus Casserly, director of First Equity risk management, believes we have a serious issue in the motor industry that needs discussion.

“Fifty percent of premiums in the country are for motor insurance, while only 35% of the vehicles currently on the road are insured.”

The situation is not sustainable and can degenerate quickly when considering the severity of the cost pressures.

The levers at play range from the high cost of insurance, vehicle and car parts and the exorbitant cost of post-accident vehicle recovery and repair – these, according to experts, are underpinned by lawlessness and the culture of impunity on our roads.

John Melville, executive head of risk services at Santam, said: “We have a vehicle repair model where imported parts play a huge role and that is putting insurers’ margins under pressure, having seen the rand depreciate by more than 60% in the last three to four years. We replace, we don’t repair.

“Post-crash vehicle removal is another festering sore as 50% of the average R20 000 claim goes to the cost of getting the vehicle from the site of the accident to the repairer.” said Casserly.

Furthermore, people are not aware, when buying a car, of what the likely cost of parts is going to be. We don’t have a rating system, like in other countries, where you can immediately see long-term costs when you buy a car.

The industry is hamstrung by having to purchase expensive non-crucial parts from original equipment manufacturers (OEMs). To exacerbate the risk framework, the rising burden of the fuel levy seems to have no end in sight. In 2007 it was R24 billion, in 2015 it will be R55 bn and that excludes the amount that goes to the Road Accident Fund.

Stiff regulation is a renowned industry bugbear. While it is meant to protect drivers, insurance ombudsman statistics recently released saw only three complaints per 1000 claims processed. Of these three claims, two-thirds are ruled in favour of the insurer.

Tracker Connect CEO Wayne de Nobrega said that more responsible driving will deliver more accurately managed risk and reduce costs for both insurers and drivers.

“We have seen the evidence in the data from our one million customers and the prospect for our roads is exciting to us.”

The need for compulsory third party insurance was high on the agenda, with the prospect of almost halving the cost of insurance to individual customers.

Smith said: “It will definitely bring down the costs of insurance. When you compare us with other countries with third party insurance, like the UK, you’ll realise that the percentage of insurance paid on the total value of the car is about double in South Africa.”

A further benefit of third party insurance is financial inclusion. Bringing more vehicles into a space where they can be held accountable.

The motor vehicle pool is key to the economy and it is key to economic growth. It is absolutely vital that we sustain and manage it properly.

The best way to do this is to improve education and financial literacy, deploy risk-mitigating technology and to work hard to remove the prohibitive cost practices that alienate 65% of our drivers.

The insurance industry currently insures around R46 bn worth of cars.

- Wheels24

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