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Perfect storm brewing for personal lines

17 June 2008 Gareth Stokes

The South African Insurance Association (SAIA) announced its new board of directors at their Annual Cocktail Function in Johannesburg last week Thursday. The function provides an opportunity for various stakeholders in the short-term industry to get together and informally discuss challenges in the industry.

During his address to introduce the new SAIA Board, outgoing Chairman, Adam Samie said “Our operating environment as short-term insurers has become increasingly complex and challenging, and SAIA’s role in facilitating dialogue and joint decision making between all role players is now more crucial than ever before.” The new board would have plenty of work to do in the coming year as regulatory and operational challenges in the short-term industry increase in intensity. This changing industry necessitated a dynamic SAIA board to bring together SAIA’s member companies.

New SAIA board elected

The new SAIA Board of Directors includes:

Nick Beyers: Zurich Insurance Company Ltd
Keith Kennedy, Mutual & Federal Insurance Company Ltd
Amit Khilosia, Lloyd’s
Ian Kirk, Santam Ltd
Nic Kohler, Hollard Insurance Company Ltd
Willem Roos, OUTsurance Insurance Company Ltd
Herman Schoeman, Guardrisk Insurance Company Ltd
Angela Mhlanga, Compass Insurance Company Ltd
Adam Samie, Lion of Africa Insurance Company Ltd
Mike Truter, Credit Guarantee Insurance Corporation of Africa
Joost Vink, AIG South Africa
Mike Durek, ACE Insurance Ltd
Adriaan Louw, MUA Insurance Company Ltd
Achim Klennert, Hannover Reinsurance Africa Ltd
Junior Ngulube, Munich Reinsurance Company of Africa

Samie announced that he would not be available for another term as chairman of the SAIA board and that a new chairman would be elected at the first board meeting.

Mr Samie said that he believed that the current immediate outlook did not look as positive as previous years for short-term insurers and that it seemed as if some concern existed about the current trading environment and the underwriting result going forward. He added that he believed the personal lines market was showing signs of severe strain, and that there were several factors driving towards a ‘perfect storm’ for personal lines insurers including the depreciation of the rand, ever increasing inflation rates, and motor vehicle accident rates.

Challenges facing the short-term insurance industry

There are a number of challenges facing the short-term industry, not least of which is the impact of inflation on meeting claims in the personal lines business. There was a “perfect storm” brewing in the personal lines business with a depreciating rand, inflation and vehicle accident rates putting pressure on underwriting results. As an example, Samie noted that: “Ten years ago the cost of accidents amounted to less than 50% of the cost of vehicle claims, with crime being the more significant factor. Now, the cost of crashes exceeds 75% of the cost of claims, and this has become a far bigger focus for insurers.” This swing to motor accidents as the most significant portion of the claims bill will continue as the country’s road infrastructure comes under continued pressure in the next few years and the number of cars on the roads increase.

“I think that we have a lot more work to do in educating our consumers” said Samie, noting that consumer education was a massive challenge across all areas of the financial services industry. Samie reminded the audience that SAIA had committed more than R27m to consumer education in the previous five years – and that such initiatives would carry on at pace in the current and future periods.

He also appealed to the short-term industry to throw its weight behind the Finance Sector Charter to ensure speedier transformation in the sector.

Editor’s thoughts: Whenever the short-term insurance industry meets the issue of vehicle accidents is raised as a major cost drive in the personal lines business. What would you recommend the short-term insurance industry does to address this problem? Add your comments below, or send them to gareth@fanews.co.za

Comments

Added by sally tayllor, 25 Jun 2008
When will the industry commit to the sharing of information with particular emphasis on claims and parties involved. This needs urgent attention where all claims are actually a pool of information which all insurers underwriting managers and scheme brokers should subscribe. How often do we hear after a claim of
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Added by Hannelie Watt, 19 Jun 2008
More careful investigation of each claim by persons of absolute integrity could save the industry millions. A large number of vehicles which can be economically repaired are written off. Less work for the assessor and the claims clerk and huge profits for the scrap dealers, but the effects on premiums disastrous for all of us.
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Added by Cathy, 19 Jun 2008
That accidents are how higher than before is a direct result of the lawlessness on our roads. Stop signs are now yield sign's and red robots must still be treated with caution. I for one would like to know what percentage of accidents are caused by the total disregard of the laws of the road. I suggest that if you have been involved in an accident where the driver did not stop at a stop sign or traffic lights, then the person at fault should have to bear the costs by their insurer.
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Added by Seelan Naidoo, 18 Jun 2008
Hi Gareth, I have two issues to raise: 1. I am not familiar what level of discussions have taken place at a motor manufacturer level regarding the cost of spare parts, between SAIA and the relevant motor manufacturing bodies. The cost of new parts is ridiculous and almost always have no corrolation to the retail price of the vehicle, therefore we are collecting premiums on the lower values (retail value of their vehicle) and yet pay claims on the higher cost to replace items. 2. Motor repairers have a mark up of up to 25% on spare parts which adds to the cost of a claim. My understanding is that this covers them for the period between ordering parts, the repair period and the time Insurer's take to settle. Why don't we settle the spare parts bill at the point of authoristaion and the labour bill when the motor vehicle is repaired. We could still provide a mark up to the motor repairer at a lower level (presumably this assists with their running costs) and of course make sure that the labour rates paid is accurate? Regards Seelan Naidoo
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Added by Old school Broker, 17 Jun 2008
To Gareth, In a perfect world, everyone would have protection against the unforeseen. Since its origins, the Insurance Industry has correctly endeavoured to spread the risk of the few over the many. In the South African scenario, only a small percentage of the vehicles on the road are covered for third party damage, therefore, the risk of the few is spread over the 'not so many', with the result that the economic balance is totally skewed ! If the local Motor Insurance Industry is ever to get its numbers right, it is going to take a minor revolution in our thinking and a return to basics. I refer to the long discussed and debated issue of Compulsory Balance of Third Party Insurance. This is a commodity that has been successfully tried and tested elsewhere and for some inexplicable reason, it has failed to germinate here. Such a product, that should be Government driven, will assist in providing economic stability in the motor insurance sector of our Industry, a myriad of opportunities for employment throughout the insurance and motor industries and a tool for our beleaguered financial services industry that constantly looks for ways to assist the consumer. The bulk of premium generated in the Short Term Industry is in the Motor Department and it is here that we must focus our efforts, if we are to make a difference. Can you help to start the revolution ? Regards, Mat. Gallacher.
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Added by Anon, 17 Jun 2008
I can well believe the higher rate of accidents on the roads, given that there are hardly any traffic police around anymore. I think the insurance industry should approach the traffic departments. They are not likely to do anything on the roads themselves however, so merely ask them to increase speeding fines - we all know that driving too fast causes accidents, no matter what people who feel entitled to speed, have to say about it.
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