Santam implements automatic annual premium adjustments for vehicle insurance

Santam, South Africa’s largest short-term insurer, is taking an industry lead with the implementation of a vehicle valuation system that automatically adjusts the annual depreciation value of motor vehicles insured with Santam. The valuation is a fulfilme

The updated valuation system aims to improve fair premium payment between clients that adjusted values in the past and those that forgot to do so. Traditionally a broker or policyholder would need to contact the insurer to reduce the value of the vehicle, based on annual depreciation rates. It will not necessarily mean policyholder premiums are premiums based on a number of factors.

Attie Blaauw, Head of Personal Lines Underwriting at Santam, explains the state of play prior to the enhanced system:

“At the time of a vehicle purchase, the car insurance premium is calculated on the value of that car, for example R115,000.00.The car insurance premium is the amount payable to replace that vehicle or repair it in the event that it’s lost or damaged.

“The market value of that vehicle however, declines every year and should vehicle loss, theft, or a write-off occur after a few years, the market value might have declined to, for example, R105,000.00 which is the amount the insurer may pay out. The fact that more than 25% of clients do not adjust vehicle values regularly means that they end up subsidising those who do – small as it may be in most cases

Santam says this automatic adjustment will lead the way in ensuring that each client pays the right premium for the risk.

“This improved system will ensure that every client’s vehicle value is updated at least once a year and that vehicle premiums are automatically adjusted, not only to account for inflationary increases in vehicle repair costs, but also in line with the latest retail values in the Auto Dealers’ Guide,” says Blaauw.

The insurer says that its premium income will not be affected by the modifications. “Our claims exposure will be no different from the past and our claims cost will not decrease because values are now being adjusted automatically. Our claims settlement methodology will stay the same, with inflationary increases in repair cost still dictating base premiums,” adds Blaauw.

Automated value adjustments, and related premium adjustments, will therefore still be structured in a way that will ensure that the insurer maintains the current overall premium income levels throughout the annual cycle until the next renewal.

“Besides the book value of the vehicle, Santam’s actuarial model takes into account a number of factors, including the type of vehicle and manufacturer, the age of the vehicle, the power-to-weight ratio, claims’ history, location of the vehicle, the age of the driver and the costs associated with car repairs and car parts. Policyholders should also bear in mind that the value and cost of car parts as well as repair costs do not depreciate annually. The percentage by which each vehicle’s value is adjusted will now be added to the above factors,” says Blaauw.

Policyholders are still cautioned to heed the dangers of being underinsured which can happen when updated information about a vehicle is not shared with a broker or their insurer. “Modifications that have been made to the vehicle in the year before the annual adjustment can impact how premiums will be calculated. A modification to enhance a vehicle’s performance may increase the car’s risk profile whilst an advanced alarm system may lower it. It will still be important for policyholders or brokers to update Santam with information such as this on a yearly basis,” concludes Blaauw.

Other benefits of the new system include improved fairness of premiums by ensuring that those who don’t adjust their values are not subsidising those who do adjust their premiums.

The new system will also mean less administration for brokers and policyholders.