Insurance of the future may benefit motor books
Marius Luyt, Head of Public Affairs for the Automobile Association (AA)
William Smith, Managing Director of Personal Lines at Hollard.
Gari Dombo, Managing Director of Alexander Forbes Insurance.
Glen Mollink, Chief Executive Officer of the Innovation Group.
Jonathan Holden, Managing Executive of Insurance at the Innovation Group.
Lochner Dicker from BMW.
When one looks at the South African short-term industry, it is clear that the industry has weathered a storm of two years which has been far from ideal. The recovery from the global financial crisis has not been as sharp as many expected it to be, and rising costs in the motor industry have contributed to the current status of the industry.
That is not to say that the only challenges that the motor books are experiencing are limited to costs, there are a number of other issues which need to be addressed. These were some of the topics which were discussed at the Insurance Institute of South Africa (IISA) forum on motor insurance: The Inside Out Story of Motor Insurance.
The roadways of carnage
Before we look at the appropriate response by insurers, we need to unpack the true extent of the problem. A recent study has shown that South Africa tops the tables when it comes to death per thousand road users, a statistic that is frightening and disheartening.
Marius Luyt, Head of Public Affairs for the Automobile Association (AA), points out that the true extent of the problem is bad. “According to statistics gathered by the AA, there is an average of 14 000 fatalities on South Africa’s roads every year. This means that there is an average of one fatal accident happening every 48 minutes. The most shocking statistic is that between 75% and 90% of these accidents are because of human error,” says Luyt.
In addition to the fatal accidents which occur on the road, AA statistics show that there are an average of 292 000 non-fatal injuries a year. Luyt adds that for every accident where there is a fatality, 20 people sustain a non-fatal injury.
The need for third party insurance
This highlights the need for compulsory third party insurance to be introduced in South Africa. There have been significant efforts to have this implemented in the past, but the current state of the motor industry most certainly indicates that it is getting to a point where the introduction of this type of insurance will save the industry while failure to implement this insurance will severely damage the industry.
William Smith, Managing Director of Personal Lines at Hollard, points out that there are a few characteristics of the South African driver which is creating the need for third party insurance. These include poor driver attitude, a culture of impunity whereby a failure to penalise people for bad driving is fuelling unchanged behaviour and the fact that the fleet of cars on South Africa’s roads is a danger to the industry.
“There are significant benefits that compulsory third party insurance can offer the insurance industry. Firstly, there is a disproportionate bearing on the costs of repairs in the industry. The current reality is that the likelihood of an insured vehicle having an accident with an uninsured vehicle is high and the recovery of costs from the uninsured party may never happen. This cost is often passed down to the insured party. Compulsory insurance will also increase the insurance pool which would then negate the above scenario. Third party insurance is not necessary to grow the industry, but it is necessary to benefit the industry,” says Smith.
Fundamental questions
While compulsory third party insurance will go a long way in reducing costs in the industry, Gari Dombo, Managing Director of Alexander Forbes Insurance, feels that there are other conversations that insurers need to be having.
The first conversation that insurers need to be having surrounds the relationship that they currently have with their stakeholders. This is where the majority of the costs are centred in the repair process, and insurers need to have more of a say in the repair process. Panel shops which are owned by insurers may be a solution to the problem, but the biggest change needs to happen with the relationship that insurers have with parts manufacturers who currently have a significant dominance on the industry.
There also needs to be a change in the vehicle licensing and training process. There is no guarantee that every driver obtained their licence legally. There are also drivers on the road who are driving without a licence, this presents a challenge to the insurance industry as recovering costs from these parties is problematic. The condition of South African roads also needs to be resolved as it can be a contributing factor to the accident rate in the country.
“Perhaps the biggest conversation that needs to take place is about products and the price of products. Are insurers pricing themselves out of the market? If we consider a client who has a net salary of R10 141 a month, 8% of this income is taken by insurers in the form of premiums. This is before the client puts aside money to live during the month. This is a major contributing factor to people thinking twice before taking out insurance. We need to make insurance cheaper,” says Dombo.
Taking a lead from international markets
Some of these challenges are not unique to the South African market. Glen Mollink, Chief Executive Officer of the Innovation Group, points out that there has been a recent price revolution in Europe where consumers felt that they were paying far too much for insurance.
This resulted in a number of sweeping changes which included moving away from gender based profiling, insurers using Big Data to better define and price risk, and consumers wanting personalised insurance in the form of insuring certain portions of their vehicles.
Jonathan Holden, Managing Executive of Insurance at the Innovation Group, says that there is also a push towards a pay as you drive system.
In Europe, if you drive more than 1 500 kilometres a month, you will pay more for insurance while if you drive less than 200 kilometres a month then you will pay less.
The car of the future
If the majority of accidents in South Africa are because of driver error, then it would make sense to design a vehicle that can drive itself. While this will take a long time to be commercially available to the mass market in South Africa, BMW is in the process of designing two vehicles which have driverless capabilities.
The BMW i3 and the i8 have been launched in Europe and underwent extensive testing before being launched into the commercial market. Lochner Dicker from BMW mentioned that customers can have the peace of mind knowing that the vehicles were tested on Germany’s world famous autobahn where the car drove itself on a motorway which is well known for its high speeds. The vehicles were also tested on a racetrack where an i3 entered into a skidplane at high speed, lost control, and the car corrected itself without any driver intervention.
Science Fiction is becoming reality. These vehicles no longer exist in the realms of possibility, but they are already launched in the European market and will be launched in the South African market by March next year.
Editor’s thoughts
The motor industry is a significant role player in the short-term industry as 60% of all claims come from this sector. The current reality is that the industry is costing the South African economy about R306 billion a year, which is distressing when one bears in mind the already slow growth rate of the South African economy. The insurance industry needs to take a stand and work together towards a common goal to improve the industry. Please comment below, interact with us on Twitter at @fanews_online or email me your thoughts [email protected].
