Consumers will have to tighten their already taut belts in 2014 as insurance premiums are set to increase.
This is according to Leon Vermaak, CEO of Auto & General Insurance.
Vermaak says that South Africa’s weakening currency, the number of recent local natural disasters and the increase in vehicle accidents are the reasons behind the rate increases.
He explains: “Auto & General, like all short-term insurance companies, insure their clients against the risk of making a claim. With the increased number of motor vehicles on the road, motorists are more likely to have an accident than in the past. For insurers, repair costs have increased significantly due to the depreciating Rand which impacts the cost of spare parts. In addition, most cars contain advanced safety features and electronic gadgetry – even base model vehicles are fitted with expensive air bags. The price to replace these features and gadgetry is resulting in substantial increases in repair costs for even minor collisions.”
Some people may argue that since their vehicle value is depreciating year on year, their insurance premiums should decrease too. However, Vermaak points out that the cost of repairing a vehicle this year will be substantially more than the same time last year, even though the vehicle’s value may have depreciated by as much as 10-15%. It must also be pointed out that accident claims, where the vehicle is written off, count for less than 10% of all motor claims.
“We update our consumer’s car value on a monthly basis. At premium review stage, customers receive the full benefit of the depreciation in value of his or her vehicle in terms of his or her premium calculation. The effect of this benefit is offset against the factors mentioned above as well as others. Were it not for this adjustment in the value, the premium increase a customer receives would be higher,” explains Vermaak.
Another factor influencing premium increases is that last year, the country was ravaged by unexpected storms and hail the size of golf balls. Auto & General Insurance staff had to work overtime to capture these claims which equated to tens of millions of rands worth of damage.
Vermaak recognises that insurance is a grudge-purchase so it is very often one of the first items to be scrapped from the monthly budget.
Vermaak’s advice for Brokers is, “Remind your customers that not many people have the cash in-hand to replace a stolen car or furniture and appliances ruined in a house fire. Those who think that insurance is an unnecessary cost should consider the costs of not being insured before cancelling their short-term insurance.”
by Leon Vermaak, Auto and General