Can insurer innovation improve motor insurance statistics?

The South African insurance market has seen a flood of apparently ‘cheap’ motor insurance offerings in recent times. Insurers like King Price Insurance (with its Super Cheap Insurance tagline) and Prime Meridian Direct (through its Motor Thrift Plan) immediately spring to mind. More recently, MiWay launched MiWheels Limited to enter the low cost motor insurance fray. Other examples of affordable motor insurance include the ‘total write off cover only’ plans offered by Chartis (Car Crash Plan) and Hollard’s Pay as You Drive.

Cheap insurance does not always meet consumer expectations, so buyer beware. Insurers must play their part by clearly informing consumers what is covered and importantly, what is not covered. The consequences of insuring motor vehicles for less than replacement value or for specified perils only should be pointed out and attention drawn to the risk of having no third party liability cover, among other risks.

What can insurers do to reduce premiums? One option is to allow consumers to insure their vehicles for what the industry calls an ‘agreed value’ rather than the fully-depreciated maximum value. Another possible solution is to structure lower-priced covers based on using second hand or aftermarket parts in accident repairs.

But be warned, cheap cover is never going to match the fully comprehensive cover typically recommend by brokers. A policy offering capped cover offers exactly that, and in the event that your vehicle is stolen, or written off, you might end up severely out of pocket.

"We are concerned that consumers increasingly transact for low cost motor vehicle insurance products, without the benefit of financial advice at a time when policy terms and conditions, particularly with regards to what and how much is covered, are increasingly cloudy,” says Barry Taylor, Chair of the Short-Term Insurance Executive Committee at the Financial Intermediaries Association of Southern Africa (FIA). "While we applaud attempts to reduce costs and increase access to motor vehicle insurance, we believe the current low cost products are merely a stepping stone as the industry strives for compulsory third party insurance.”

Compulsory motor insurance would be welcomed by the FIA mainly because of the expected positive impact that it would have on average premiums. "At present, it is usual for the insured population to pick up costs whether they are in the wrong or not, because a large part of the population is uninsured, or simply does not have the means to contribute to the damages they cause,” says Taylor.

The National Traffic Information System (e-Natis), reflects a vehicle population of approximately 10.9 million at 31 July 2013, and the industry estimates that only 35% of these vehicles, a mere 3.8 million, are insured.

How will mandatory insurance be implemented? One of the debates will be whether consumers, with broker assistance, will be able to choose their mandatory insurance cover from available market offerings versus government stipulating membership of an insurance arrangement run as a dedicated scheme.

From an FIA perspective the traditional offering of comprehensive cover should be supported by a mandatory third party cover over all other road vehicles. The implementation and offering of mandatory insurance should not become a competitive issue, but rather operate on a one size fits all basis.

"We believe a mandatory insurance solution should be ‘managed’ by the insurance industry that has the knowledge as well as the administrative, operational and financial infrastructure to do so,” says Taylor. "This would also give our clients the peace of mind that their vehicles are covered with particular reference to excess payments.”