Industry looks towards resolving challenges with scrapping database

Jonathan Faurie, FAnews Journalist

Are we any closer to decreasing the number of uninsured vehicles that we have on our roads? This is the quandary facing the insurance industry which is seemingly fighting a losing battle as more and more uninsured, unroadworthy, vehicles are seen gracing our roads.

In order to resolve the problems, we have to get to the possible roots of the problem. While there may be a number of reasons why this is happening, one of the reasons may be a problem with the deregistering of vehicles in South Africa.

The South African Insurance Association established a Code of Motor Salvage to deal with the deregistering of vehicles in the short-term insurance industry many years ago.

The main purpose of the Code of Salvage (Code), established by the South African Insurance Association (SAIA), the Banking Association South Africa (BASA) and the National Motor Financing Association (NMFA) and supported by Business Against Crime South Africa (BACSA), the South African Police Service (SAPS) and the South African Insurance Crime Bureau (SAICB), is to establish a common approach when dealing with motor salvage, with the end goal being to assist in combatting motor vehicle crime and specifically the cloning of vehicles and to address road safety, to the benefit of all role players and ultimately the South African public.

Customers are not being treated fairly

While the Code of Motor Salvage used by SAIA remains very relevant, there are changes which are being made to the code in an attempt to try and resolve some of the grey areas found within the Code.

In the latest SAIA Bulletin, the Association addressed concerns raised by the Office of the Short-Term Insurance Ombudsman (OSTI), that customers were possibly not being treated fairly in the deregistering process.

The Bulletin points out that written-off motor vehicles are motor vehicles which insurers decided not to repair, where the damage exceeds a certain percentage of the value of the vehicle. This differs from insurer to insurer in accordance with their internal procedures and in the best interest of policyholders. Currently, clause 4.2.2 reads as follows, “Written-off motor vehicles are motor vehicles where the insurance company decided not to repair the motor vehicle where the damage for example exceeds 60% to 70 % of the value of the motor vehicle.”

The Bulletin adds that in the spirit of treating customers fairly, SAIA members should consider requests from customers who do not wish for their vehicles to be written off. This is necessary in light of the fact that SAIA has received input from OSTI about the number of complaints received from policyholders regarding their vehicles being written off, and the perceived unfair treatment in this regard. SAIA will be meeting with the OSTI to obtain further input on the implications of lowering the write off threshold of motor vehicles.

This obviously differs from person to person depending on their individual financial circumstances. It also depends at which level the insurer writes off the car. SAIA Manager, Dawie Buys, points out that certain insurers does not follow the 60%-70% write off threshold guide but go as low as 40%-50% of the vehicles value as a write off threshold.

This puts certain people in a quandary. If an insurer is using a write off threshold of 40%-50%, realistically there could not be much wrong with the vehicle and it could still be roadworthy. For newer vehicles and policyholders who are in a financial position to replace their vehicle, this will not matter much. But for older vehicles and policyholders who are not in a position to replace their vehicle, they would not want their vehicle written off, and would prefer to have the vehicle repaired.

Buys points out that this is a complex issue and will not be resolved overnight. SAIA is working hard to fine-tune the Salvage Code and hopes to launch the revised Code within the next two to three months.

Working towards a resolution

This situation obviously raises a number of concerns. If the policyholder chooses not to have the vehicle written off in order to have the vehicle repaired, the vehicle may well be repaired by a proper workshop or there is a danger of the vehicle being repaired by a “backyard mechanic”.

If a vehicle owner is in this situation, there is a fine line between whether the vehicle is written off or not. If it is written off, it is either deemed unroadworthy under the current Code 3 or Code 4 of the Salvage Code or still roadworthy under Code 2 of the Salvage Code.

If a policyholder selects to have their vehicle repaired privately and then still have the vehicle insured, they will have to prove to the insurer that the vehicle is still roadworthy. This is either done through a report by the Automobile Association of South Africa or by the insurer’s motor assessors reports, but there is a chance that these vehicles are still on the road and are now uninsured. If the vehicle is written off, depending on whether it falls within Codes 3 and 4 of the Salvage Code or within Code 2 of the Code, the parts can either be sold as second hand parts and Code 4 vehicle needs to be crushed and compacted although some of the parts of Code 4 vehicles can also be sold.

This is a situation that SAIA needs to keep control of. “The only way we are going to be able to keep control of this, is to establish a Salvage Database whereby we can monitor the vehicle from the time it is in the accident until such time as the vehicle is either scrapped or repaired and put back on the road. This is an intensive process which we are in the process of establishing. This will obviously take time,” says Buys.

What level of participation can we expect?

In order for this to be a success, there needs to be a high level of participation and commitment from all parties involved in the deregistration process. If this is not the case the system will collapse and we are placed back in the same position we are now.

The database will also allow SAIA to keep tabs on the rumours that vehicles that are written off by insurers still manage to find their way back onto the road. Unconfirmed reports indicate that Code 3 vehicles are written off by insurers and then sold at auctions by the same insurers. It is a known fact that salvage dealers sell these vehicles at auctions where there is no damage to these vehicles that would compromise the vehicle’s safety.

Editor’s Thoughts:
SAIA is in discussions with insurance companies, salvage dealers, OSTI and other stakeholders in order to make sure that the database is a success and the proper way in which to solve the situation that the industry finds itself in. Is this the solution? Please comment below, interact with us on Twitter at @fanews_online or email me your thoughts jonathan@fanews.co.za.