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Car insurance too pricey

Johannesburg - Motor vehicle insurance premiums will become unaffordable if current trends in motor accidents and uninsured vehicles persist.

South Africa is a country where motor vehicle insurance is already very expensive, and premiums will certainly continue to escalate beyond the inflation rate.

This could have far-reaching implications because only 30% of all vehicles on the road are insured.

According to the South African Insurance Association (SAIA), 70% of all claims for vehicle damage received by the insurers are the result of accidents. Abuse of alcohol plays a role in a large proportion of these accidents.

The accident statistics are alarming. Every day 36 people die on South African roads and 14 000 accidents occur each year. Those dying on the roads every day include 15 pedestrians and three taxi-accident fatalities. According to SAIA's statistics there are 7 000 taxi accidents a year.

The accident statistics put pressure not only on insurers but also on the banks financing vehicles. Consumers ultimately suffer huge financial consequences.

The five large vehicle financiers annually write off some R500m as a result of damage to uninsured vehicles.

In addition, the short-term insurers all reflect losses on their vehicle books. In turn, insurers' losses currently result in their rejecting many claims resulting from accident damage.

The situation is currently so parlous that some vehicle financiers have created internal divisions to negotiate rejected claims with insurers on behalf of vehicle owners.

Another factor contributing to vehicle financiers' and consumers' big losses is the fact that many people have no insurance - or are underinsured.

Marcel de Klerk, chief executive of Absa Vehicle and Asset Finance, says in terms of finance agreements cars must be ensured. People, however, often cancel the insurance as soon as they feel the premiums are financially burdensome.

Then, when the car is in an accident, there is scant chance that the underinsured can pay for the accident damage, or the outstanding instalments on the vehicle (which he possibly no longer has). De Klerk notes that financiers do everything in their power to collect some of the arrears, but the full amount is seldom recovered.

Consumers also experience losses owing to underinsured vehicles. They often try to keep the premiums as low as possible, thus committing themselves to unaffordable excess payments.

De Klerk reckons consumers should guard against buying a pig in a poke with a premium that is too low and excess payments that are then too high.

The TransUnion credit bureau and some of the insurers and vehicle financiers are together involved in compiling a database in which insurers and bankers' information can be compared.

This database will enable TransUnion to monitor when insurance is cancelled, at which point it will inform the financier. This will reduce the number of underinsured vehicles and save the banks a lot of money.

De Klerk reckons the best solution for insurers, vehicle financiers and consumers would be to make vehicle insurance compulsory.

- Sake24.com

For more business news in Afrikaans, go to Sake24.com.

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