Short-term: staying a step ahead

Across the board, motor books constitute the larger portion of assets covered by short-term insurers in South Africa, necessitating constant innovation and increased efficiencies to maintain profitability and stability.

Harnessing a range of new developments in the vehicle industry, and through constant innovation in the insurance industry, insurers, brokers and their clients can effectively manage risk and overcome the challenges unique to the South African vehicle insurance market.

Theft and hijacking

New and improved technology make life a little more complicated for vehicle thieves and hijackers, while creating a range of benefits for all stakeholders involved. One such advanced technology is micro-dotting, a process in which 'microdots' – which are impossible to remove - are sprayed onto various vehicle parts, to provide each vehicle with its own DNA.

Clients benefit from potential insurance discounts, easy identification of their recovered vehicles and, most importantly, increased safety, since micro-dotting acts as a deterrent by significantly decreasing the value of the vehicle to criminals. With no monthly fees payable, it is also cost-effective.

Insurers benefit from a reduction in professional vehicle theft, registration fraud and fraudulent accident-damage claims. Micro-dotting can be combined with pre-insurance inspections, assisting insurers in managing their motor books. Most insurance underwriters and brokers can verify a micro-dot installation directly via their links with TU-Auto and Tsohle-Unicode.

Road conditions

The deteriorating infrastructure, as well as the high percentage of unlicensed drivers and uninsured vehicles on our roads, ensures a vehicle accident is costly and problematic.

The principle of subrogation allows an insurer to recover its costs from the responsible party after indemnifying the client. However, it is estimated that between 60% and 70% of vehicles on our roads are not insured and recovery from uninsured third parties remains an ongoing challenge for insurers. Although successful recoveries improve motor book loss ratios, it is a time-consuming and often costly forensic and legal exercise.

One innovation to address this problem is lower cost alternatives to comprehensive cover, such as Momentum's CORE. These products do not replace comprehensive cover but services differentiated needs for some existing and potential new clients, allowing for greater penetration into the mass market that may be untapped and under-serviced by financial service providers.

The new demerit point system is expected to have a positive effect on the overall behaviour of drivers, making the roads much safer for motorists. The impact on insurance will include fewer claims and, ultimately, lower insurance premiums.

Containing claims costs

The cost of insuring high-end luxury motor vehicles also poses challenges. New vehicles are increasingly technologically advanced, requiring expensive equipment and parts, which increase the cost of repairs. Insurers who do not factor the increasing costs of parts and labour into their pricing could experience a detrimental impact on their motor book loss ratios.

Effective management of the claims process further demands that costs are managed through effective service provider management and disciplined procurement.

Efficiency

Progressive insurers determine individual risk profiles through a sophisticated methodology of underwriting each client. Ultimately it is about charging the right premium for the right risk exposure. As such, clients' premiums will not entirely depend on the general claims experience of the portfolio, but rather on their unique risk factors and the experiences of each individual client.

This means brokers can offer low risk clients better premiums without significant increases due to others' claims experiences.