Some ideas to cure those motor insurance blues
Viviene Pearson, recently appointed as Manager: Motor at the South African Insurance Association (SAIA), has her work cut out for her. The position was created as part of the insurance organisation’s comprehensive strategy to address issues in the short-term motor insurance space. “For the past year or so the motor insurance industry and the motor insurance business class has come under quite a bit of pressure, with most of our member companies in this area experiencing a lot of difficulty,” said Pearson.
How does one go about reviving the short-term motor book? Pearson recently told us the strategy would have two legs. The first is to facilitate the provision of affordable comprehensive vehicle insurance, and the second, to contribute to safe road practice. On closer inspection these goals are entirely interdependent. Safe road practices reduce the number and value of insurance claims, lowering premium for all. SAIA will focus on six key areas in the coming years, including the driver, the vehicle, vehicle crime, road infrastructure, the supply chain and data and technology. You can read our previous article on the topic by following this link: [
FAnews readers share their ideas
A number of our readers responded with suggestions on how Pearson could reshape the short-term insurance space. The concept of compulsory third party insurance tops the suggestion pile. “I do not understand why the industry has failed to come up with compulsory minimum insurance,” writes Ian. “The limitation faced in respect of third party recoveries is atrocious!” This fact is borne out by any number of stakeholders in the industry. Recovering money from uninsured third parties is virtually impossible, and becoming more difficult each year. “The government and industry must fast track this measure to ensure that every vehicle used on our public roads has basic insurance to cover third party property damage and third party bodily injury!” adds Ian.
At present there are no rules or regulations forcing South African motorists to take out insurance. To make matters worse many of the country’s drivers take to the road without driver’s licences, vehicle licenses or roadworthy vehicles (even if they happen to be licensed). Although we agree with the compulsory third party insurance idea it will only work if the department of transport – in partnership with the country’s enforcement agencies – totally revamp their policing and license administration functions. Current legislation is poorly policed, and without improvements to both administration and enforcement, any new legislation will fall flat!
Driver training and road user education
Readers also suggested introducing tougher measures when issuing driver’s licenses. Before you throw your hands in the air – the difficulty experienced by South African drivers in obtaining their licenses has nothing to do with the test. Instead their frustrations centre on being able to make appointments for the test… It’s as if we’re being tested on our ability to deal with bureaucracy and inefficiency rather than our driving skill. The inevitable consequence of the testing centre debacle is a surge of individuals trying to ‘purchase’ licenses illegally. The driver’s license issuing process could be further tightened by making sure drivers apply for the appropriate license category. It doesn’t help to issue truck licenses (which allow individuals to drive motor vehicles too) when certain aspects of handling a motor vehicle are never tested!
Insurers might have to make some changes to their systems and procedures too. Seelan observes that many short-term insurers have failed to take the actions necessary to protect their motor books over time. He blames them for “competing at uneconomical terms to acquire new business and ignoring the consequences of such actions.” The minute a book of business becomes unprofitable they simply fob it off on another insurer; but no corrective action is ever taken. Another ‘mistake’ is to carry unprofitable corporate motor business for fear of losing massive premium were this client to move its entire cover to another insurer.
The sum of the parts
The biggest bugbear among short-term motor insurers is the escalating cost of vehicle repairs. We’ve spoken to some auto repairers who say that original equipment replacement parts have increased at rates well in excess of inflation over a number of years. And the rate of increase spiralled through the 2008/9 vehicle sales slump as manufacturers did whatever they could to remain profitable. One reader offered this example of lateral thinking. “Perhaps the motor insurers should discuss the issue with Discovery Health – because the problem lies with the cost of spare part – much like Discovery’s problems centred on the cost of doctors, specialists and medicine producers,” he observes. The simple solution in this case would be to get the supply chain on board with some form of tariff agreement – with due consideration for the possible complications, including possible contraventions of competitions legislation.
We’ve observed another supply chain issue first hand. An insured driver replacing the front windscreen is charged multiples of what an uninsured driver is charged for the same product and service. We understand the ‘cash discount’ concept; but we cannot understand how insurers allow this situation to persist. There payment, after all, is as good as cash… The premium they pay to the fitment centre should be around 2% per month, so 4% for 60-day settlement.
Editor’s thoughts: There you have it. We’ve shared some of our reader’s ideas on how to restore margins on ailing short-term motor books. Do you agree with their views? And do you think South Africa’s enforcement and administration agencies are capable of implementing a compulsory third party insurance scheme? Add your comment below, or send it to [email protected]
Comments