Crisis in car insurance

Crisis in car insurance

2010-06-20 16:54

Johannesburg - Drastic steps are required to ensure that motor insurance remains affordable for consumers and that their insurance companies can continue offering motor vehicle cover.

South Africans are paying more for motor insurance here than in any other country and insurance companies have for the past two years or more been showing burgeoning losses in their motor book.

Because many people find the premiums for motor insurance unaffordable, only about 35% of the just over 9.5m vehicles on the roads are insured.

Nevertheless, the number of accident claims received by insurance companies keeps rising and the cost of repairs is extremely high.

The South African Insurance Association (SAIA) has now launched a comprehensive strategy to ensure that affordable and sustainable cover will become available to South Africans in future.

Viviene Pearson, who was appointed head of motor insurance at SAIA in April, says the costs of repair work and the incidence of accidents are soaring and pushing up both insurers and consumers’ costs.

Crime and road safety also play a role in the high number of vehicle-related claims.

Pearson says some of the smaller insurers have already indicated that they can no longer offer motor cover. The premiums that they collect are not enough to pay the claims.

In 2008 short-term insurers, according to the latest available statistics, collected R20.8bn in premiums for motor insurance and paid out R14.8bn on claims.

Crime is no longer the biggest problem, although it still occurs.

Pearson says in 2002, before the insurance industry and the SAIA took steps to combat hijacking and vehicle theft, crime-related claims represented 60% to 70% of motor vehicle claims.

Currently claims for accident damage comprise 70% to 80% of the claims.

If insurance companies can no longer offer vehicle insurance, this will ripple out to the entire economy and those providing finance.

Financial institutions will no longer provide finance and people will no longer buy cars, which would seriously impact the motor industry.

The SAIA, in collaboration with industry, has drawn up an action plan that was accepted in February.

Committees are being appointed to attend to the various problems.

One of the major problems is the behaviour of drivers, says Pearson.

There are many problems regarding fraudulent driving licences, the lack of driving skills and corruption in the licensing divisions. Driving under the influence is also a serious issue.

According to figures from Arrive Alive, cases of driving under the influence of alcohol soared 336% for all categories of vehicle between 2004 and 2008.

The SAIA is going to attempt to make driving skills and general road safety part of the school curriculum.

Part of the SAIA’s plan is also to introduce regular roadworthiness tests for all vehicles. A roadworthiness test is currently done only when a vehicle is reregistered.

Repair costs

The cost of repairs is a massive problem for insurers.

Santam personal insurance underwriter Attie Blaauw says repair costs are an even greater problem than motor car theft.

Blaauw says as the vehicle becomes older the insurance premium declines, despite repair costs remaining high.

Pearson notes that in the new strategy ways to make spare parts and components cheaper are being investigated. This would be done in close cooperation with the motor industry.

Insurance companies are haemorrhaging. They don't wish to get rich from motor insurance, but only make a profit and keep premiums affordable, says Pearson.

The poor condition of roads and motor vehicles also contributes to the high accident and claim statistics.

The average motor vehicle on South African roads is 10 years old and taxis are on average 13 years old.

This means that many vehicles are not roadworthy, even though they are licensed.


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