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The problem with car insurance

And the drivers who have and don’t have it.

SUN CITY – Car insurance is expensive, which is probably why just 35% of South African drivers have it.

Called on by National Treasury to reduce the cost of motor insurance in order to promote financial inclusion, insurers argue that they are covering drivers exposed to the vagaries of South African roads and footing the bill for costly repairs as a result of frequent accidents.

In a panel discussion at the annual Insurance Conference in Sun City, owner of insurance broker firstEQUITY Risk Management Services, Seamus Casserly, said that as much as 40% of an average motor claim goes towards the cost of towing a vehicle.

Repair costs also remain exceptionally high due to the significantly more expensive original equipment manufacturer (OEM) parts that owners are obligated to use while their vehicle is under warranty, even where these are not safety critical.

The weakness of the rand drives the cost of imported parts notably higher, adding to the overall cost burden. John Melville, executive head of risk services at Santam, said that these costs are making the short-term insurance industry “less and less sustainable”.

Melville said the industry was moving to publish a rating system for the cost of repairs and maintenance so that consumers know when buying a vehicle what these costs will be and how they will impact on the cost of their insurance.

Margins on motor books are under pressure due to a large number of accidents, which increases the frequency of claims, the size of the insured pool and the cost of repairing these cars.

Low levels of insurance penetration mean that insurers generally cannot recover their costs from third parties responsible for accidents involving their clients, since the chances are that these third parties do not have insurance and either cannot afford to pay the damage or will pay only after expensive and time-consuming court action.

“Unless we can make inroads into reducing those drivers of costs, we are not going to make products affordable,” said Melville.

“The industry has been lobbying government for the past decade to introduce compulsory third party insurance,” noted head of personal lines at Hollard, Willem Smith. “If one can get third-party liability insurance through, that will go a long way to assist with broadening the pool,” he said.

Collaboration urgently needed

According to CEO of the Road Accident Fund (RAF), Eugene Watson, there are around 11 million cars on South African roads with roughly 24 million daily commuters. That only 35% of these vehicles are insured is unsustainable, said Watson, urging the industry to not simply rehash existing products to serve the uninsured but look to develop new products to meet their needs.

The RAF has been insolvent since 1981 and currently has a R115 billion deficit. By way of a levy, the RAF receives R1.50 from every litre of petrol sold. It spends roughly R22 billion annually on providing personal accident compensation for the victims of car crashes. It is estimated that South Africa spends roughly R306 billion annually, some 8% to 10% of GDP, on costs relating to road fatalities.

“There is a culture of impunity as far as road safety is concerned in terms of compliance,” Melville said.

Casserly suggested that insurers refuse to pay claims where disregard for the rules of the road has caused the client’s accident.

Wayne Duvenage, chairperson of the Opposition to Urban Tolling Alliance (OUTA) called on industry body the South African Insurance Association (SAIA), to hold government to account on corruption and fraud in licencing, as well as the problem of accidents, potholes and faulty traffic lights.

Duvenage said E-Toll compliance peaked at 45% last year when government threatened more punitive action against offenders but is now at 20%. He said he will get an E-Tag if the system works, there is sufficient public engagement on the matter and the money is used to improve public transport.

Commenting on the importance of engaging with government, Melville pointed out that through Business Against Crime South Africa (BACSA), insurers and other business organisations very successfully partnered with the South African Police Services (SAPS) to dramatically reduce the number of hijackings.

Santam saw its hijack-related claims cut by more than half as a result. “Accidents account for 70% of the motor claims we are paying. We need to tackle this collectively as an industry,” Melville said.

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It should be compulsory that all vehicles which are licensed are at least insured on a third party fire and theft basis. Its nonsense that there are so many drivers driving around with no effective cover for their vehicles.

People do not insure because it is not affordable….. simple as that. No one goes out looking for an accident. No one takes their hard earned savings, buys a car, only to wrap it around a pole. I find it hard to believe that SA accident statistics are significantly out of line with the rest of the world. Fact of the matter is if you want to work or earn a living you need transport, with hardly an effective public transport system what are you supposed to do? Furthermore, if you cannot afford the insurance should this be a reason for you not to own a vehicle? This is nonsense…..

Thanks for your comment Eugene. SA’s accident statistics are significantly higher than the rest of the world, and also significantly more fatal, as people exceed the speed limit by a country mile and often drive drunk. I lived in the States for a while and people simply did not drive when they had had too much to drink. Ever. It simply was not done, in part because the consequences were so significant if you were caught. Here, many drivers don’t even think twice about getting behind the wheel after having had one too many drinks. When I look at the way people drive on our roads – significantly exceeding the speed limit, driving under the influence, jumping red lights, not keeping a safe following distance, weaving in and out of traffic – I kind of think they are looking for accidents to be honest.

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