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Industry leaders: SA car insurance in crisis

2015-08-06 09:32

SA'S HORROR ROAD DEATH TOLL: Injured passengers stand around the crash scene of a bus crash in Limpopo. Transport industry leaders are calling for change. Image: ER24 / Arrive Alive

Chad Fichardt

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 and the insurance industry is struggling to keep costs down, adding the risk of further distancing its customers. 

Added to these factors is the risk of human collateral as the country's annual road death toll approaches 18000, reports Mediaweb’s Chad Fichardt.

INSURANCE CRISIS

Seamus Casserly, director of First Equity risk management, believes we have a serious issue in the motor industry that needs discussion. Casserly said: "50% 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.

CULTURE OF IMPUNITY

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."

Casserly said: “Post-crash vehicle removal is another festering sore. 40% of the average R20 000 claim goes to the cost of getting the vehicle from the site of the accident to the repairer.” 

LONG-TERM COSTS

Furthermore, people are not aware, when buying a car, 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-billion and that excludes the amount that goes to the Road Accident Fund.

Melville noted that the 35% of vehicles that are covered are relatively well serviced. He said there are effective processes in place, and high levels of competition.

REGULATION NEEDED

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.

That means one claimant per 1000 is ending up losing in terms of that measurement, and that the insurers are the ones benefiting.

Casserly asked the following to a panel of industry leaders: “Why don’t we have a motor insurance policy (in South Africa) that only pays if you stay within the rules, and are legally compliant? If you go through a red traffic light, no cover. This as a way to bring down the costs of insurance and to reward legal drivers.”

Casserly cited the aviation industry’s strict rules relating to insurers not paying out when a pilot breaks procedure.

'MITIGATE RISKS'

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

De Nobrega said: “We have seen the evidence in the data from our one million customers and the prospect for our roads is exciting to us. Yes, the risk issue is real and daunting, but the answer, we believe, lies in using technology to mitigate those risks for you.”

Willem Smith, managing director of personal lines at Hollard insurance, proposed that the impending technological disruption of driverless cars and the like, might offer hope.

Smith added: “The 3D printer may fundamentally change how parts are sourced and sold.”

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.

Speaking of ways to unlock the uninsured 65%, Santam’s John Melville asserts that, unless insurers can make inroads into reducing those drivers of costs they are not going to make products affordable enough.

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 R46bn worth of cars. Imagine what a less risky environment would look like?


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