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.