FIFI PETERS: This time last year it would’ve cost a heavy truck [owner] about R327/month for insurance cover worth R2 million at the state-owned insurance company known as Sasria. But things are set to change. Following the riots in July, [Sasria] insurance for the same truck will cost just over R6 000 from February next year. This is a pretty steep increase and it applies across other segments, including commercial vehicles and taxis.
Joining us to help us understand the increases that are set to take place at Sasria is Muzi Dladla, the executive manager of stakeholder management at Sasria. Muzi, thanks so much for your time. Quite steep increases across the board are set to kick in from February. I mean, the freight industry in itself has already described some of what is set to happen as ‘unfair’; nonetheless, just help us understand why.
MUZI DLADLA: Good evening Fifi. Thank you for having me once again on your show. With the increase, particularly on the truck side, I think it is important to understand that it’s not just an increase brought about by the unrest that you’ve seen recently. It has obviously been exacerbated by it but it has been a long-standing history of a loss-ratio problem with the trucks.
Just to give you a perspective there, from about 2013 all the way up to 2017, the average loss ratio we’ve had there is about 240%, which means that for every R1 that had been paid in premium, R2.40 was paid in claims.
So in 2019 we changed the structure to create a particular extension or rating methodology which is specifically for trucks.
It used to be a fixed rate. Now it is calculated based on the value at risk per truck, meaning that the lower-value trucks will pay a lower rate, and the ones that have a higher value – like a truck worth R5 million – would obviously then have a higher premium as a result. That’s the first thing that needs to be understood.
And then the fact that trucks in particular have been an issue in the past is obviously [why] we are making a way that the premium is calculated accordingly so that it’s not subsidised by other classes, because you would know that there’ve been many, many protests and unrests where a lot of trucks have been burnt and torched – particularly what has been happening around South Africa, with many reasons why this is happening.
But the bottom line is that it has been a standing problem. It has now got to a point where we need to fix it the way that we have.
FIFI PETERS: Sure. But then if you just strip the effects of the riots aside, if you take that outside of the equation, why has it taken you so long to adjust for the risk around heavy trucks, because this adjustment now is like someone essentially asking you to swallow an elephant in one bite-size by the quantum in which the increase will take place.
MUZI DLADLA: Let me put it this way. The increase in itself – the way that it is now – would potentially have been the same if we did it a year ago or even two years ago. We could not necessarily price in, in its entirety, the impact of the riots as they have been now because, as you know, it is in the billions. There’s no amount of recovery that you can make in terms of pricing when we’re pricing for it, so we’ve normalised it.
We are now pricing the risk particularly as it is experienced. In other words, all the expenses of all the claims we’ve had over time, excluding the event of [this] July, are how we’re pricing it.
The reason why we took so long is because we are the only insurer that does Sasria risk. I think the biggest contributing factor here is that there used to be one premium for all specific trucks, regardless of the value, while it is actually the ones with a higher value that are more impacted.
I think that clarification needs to be made. It is not all the trucks that you have [on] the road that are impacted as such. So we had to wait until such time that the risk in itself had escalated to the level that it has. If we had implemented it about a year or two ago, I think the increase impact would’ve been relatively the same in any case.
FIFI PETERS: And then the element of the July riots? From my understanding insurance companies adjust for present risk and they also try to cover themselves for the potential of future risks. I’m just wondering, with the increases that we are seeing – the very steep increases across a few vehicle lines, your commercial line, your commercial cars, taxis even, and then the different degree of trucks – is this Sasria also saying that it is concerned about a possible repetition of the riots that place in July happening again in future?
MUZI DLADLA: That is a good question. First the pricing in itself could not necessarily be able to handle the impact of a similar scale coming back again. There is a potential that it might happen again, that we have another unrest of the same scale, or even lower. But obviously there are other elements that we take into account. What we are doing now to protect Sasria in itself is we’ve obviously changed the way that we reserve our assets.
We have changed our reinsurance structure as well to ensure that the attrition losses that we can handle within our risk appetite. We still continue to take those on our balance sheet, but the big events to the proportion of what we saw now, we do transfer to a very large extent all of those; and we’ve really changed the way that we retain business and we’ve really changed the way that we transfer some of that risk. So that, should it really happen, we don’t only expose Sasria’s balance sheet to the extent that it has been up to this point, but we include other balance sheets of particularly reinsurers in that sense. So there are various things that we’ve done – not just to the premium increase, because premium increase in itself can never be sufficient to do that.
And then thirdly there are risk mitigations that we’ve implemented, including collaborations with the security clusters and all other risk mitigations that we could put in place to try and make sure that we mitigate the impact.
FIFI PETERS: Muzi, unfortunately that is all we have time for at this stage, but I imagine that this is a conversation we’ll be having into 2022. We’ll leave it there for now. Muzi Dladla is the executive manager of stakeholder management at Sasria.