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Fan-belts fly in insurance dispute

2007-07-05 07:24

Shaun Harris

SHORT-TERM insurance is widely regarded as a grudge purchase. So are panel-beater costs. And tow trucks - well, the behaviour of the highway vultures doesn't endear the industry to luckless motorists involved in accidents.

But that's probably the minority, and as much as consumers don't like paying for insurance, vehicle repairs and towing, they are all essential services.

As a policyholder, if your insurance company is aggressively trying to lower repair bills, you should be happy. It's the company's job and if it can use its influence to lower motor insurance premiums, that's great.

A dispute between organised motor repairers and tow-truck associations - as Mutual & Federal (M&F) is currently engaged in - should not concern the policyholder.

But if claims that some M&F managers and assessors are instructing panel-beaters to use pirate and/or second-hand parts, without telling the client, then it's cause for concern.

It's not conclusive but evidence presented by the South African Motor Body Repairers Association (Sambra) and the South African Towing and Recovery Association (Satra) suggest it might have happened. That's the allegation the two bodies have made in prominent newspaper advertisements, and it has been backed up with at least one e-mail making the same allegation from an M&F policyholder.

'...Like headless chickens'

However, there might be a bigger picture here. It's anecdotal and based on conversations with only a few short-term insurance brokers, but they mention noticing a change over the past six months or so at the company.

"At the local branch level managers seem to be under a lot of pressure - they are running around like headless chickens. And when I have to deal with head office, I get a feeling of indifference," says one.

Brokers put it down to trying to put the motor-insurance portfolio 'back in shape', a troublesome book for all underwriters as the high accident and theft rate makes motor insurance barely profitable.

That's also at the heart of the dispute with some panel-beaters belonging to Sambra, who are threatening strike action due to pressure on its members' profit margins by what it calls M&F's "sub-standard rates and commercial dispensations against the threat that if you do accept their terms, you will be excluded from the panel". Brokers add that M&F has indicated it will seek motor-premium increases as high as 35% this year.

Pressure from the top?

But if M&F managers are coming under increased pressure, perhaps it's right from the top - major shareholder Old Mutual (which holds, at last count, 77% of M&F's equity). In 2004, Old Mutual launched an unsuccessful bid to buy out M&F minority shareholders. Like Sanlam and Santam, Old Mutual wants to wholly own and de-list its short-term insurance subsidiary (and have full access to the considerable cash flow generated by insurance companies).

M&F's share price has been drifting down over the past year (by about 11%) and it's lost around 1.3% in the week since Sambra and Satra placed the advertisements, though it's impossible to say whether that's the direct cause of the share price decline.

But a weakening share price would well suit Old Mutual if it is again girding its loins for an attempt to take-out M&F minorities.

However, M&F executive GM Keith Kennedy describes as "absolute nonsense" any suggestion that the company is under increased pressure from Old Mutual, and says he has no knowledge of another pending offer to minorities.

M&F consulted attorneys

Regarding the hard-hitting advertisements telling M&F policyholders not to believe the company and alleging that it's instructing panel-beaters to use pirate parts without the clients' knowledge, he says M&F has consulted its attorneys. They intend applying for an interdicts against the two associations.

"Look, we have 900 and something claims staff out there, and if someone is not following procedure and our best practices by advising panel-beaters to fit generic parts without the clients' knowledge, we will take action. But I don't think it's happening," Kennedy says, adding that the allegations by a policyholder in the e-mail received by Finweek are under investigation.

He also says M&F has widespread support from brokers, pointing to the two awards recently won by the company on the votes of insurance brokers.

However, Richard Green, the national director of Sambra, says large insurers like M&F have "lost contact" with their business.

"It's a fractured business and I don't believe head office knows what's going on below them. Bruce Campbell (MD of M&F) and Keith Kennedy say they are not aware of instructions by some assessors to use pirate parts, and I don't believe they are. But it is happening and the pressure is on us - we have had no real increase in our rates since 2000, and M&F is handing the mark-up we used to get from sourcing parts to third parties and outsourcing functions we used to do."


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