The foundation for sustainable motor insurance

The short-term insurance industry is taking strain as the profitability on motor books across the industry remains in decline. Hard pressed consumers who shrug their shoulders in a “so what” gesture should perhaps consider the implications of a domestic motor insurance industry meltdown. Imagine not being able to insure your motor vehicle at any cost. You’d have to underwrite your motoring risk – and probably finance your vehicle cash too. Finance houses – already under risk due to the large number of unsecured motor agreements – would probably stop financing vehicle purchases.

Major stakeholders in the short-term insurance space are preparing to resuscitate the motor vehicle insurance industry. At an Insurance Institute of South Africa (IISA) breakfast seminar held near Johannesburg on 23 July 2010, a number of speakers outlined plans to control the cost of motor vehicle thefts and repairs, and spread the risk more evenly. Lynette Bisschoff, Chief Operating Officer, Momentum STI, presented a broad overview titled Factors affecting the Sustainability of Motor Insurance.

A three-pillar approach

There are three functional areas that must be optimised to achieve the goal of sustainable motor insurance. Bisschoff says these include insurer underwriting & claims process management, driver skills & client behaviour, and infrastructure & societal behaviour. The short-term insurance industry has direct control over the first pillar, but requires massive commitment from other stakeholders to enforce changes in the other two.

Short-term insurers can make major improvements in their motor underwriting by understanding risk. They must make sure enough inputs are gathered at underwriting stage to enable responsible and scientific underwriting. Failure to do so could result in expensive mismatches between premium and risk covered. Insurers, underwriting managers and insurance intermediaries all have a crucial role to play in the underwriting process. Bisschoff believes that costs can be reined in on a number of fronts. Insurers should, for example, actively manage the cost of vehicle repairs by educating assessors and repairers, managing the cost of parts and sharing data.

Another concern in the claims process management arena is the massive ‘leakage’ caused by non-repair expenditures. Towing, storage and car hire can quickly dwarf the cost of the repair, while salvage and recoveries remain an area of concern too. In each of these instances – bar towing – the insurer and intermediary can work together to speed up the claims assessment, authorisation and settlement process.

Crazy driver behaviour

South African drivers show scant respect for the law. One of the country’s many Apartheid legacies is a disproportionate number of older drivers entering the driver pool. Driving skills and experience must be addressed by improving the quality of driver training. Enforcement agencies need to come on board to reduce the number of unlicensed drivers, un-roadworthy vehicles and prevalence of drivers who drive while under the influence of drugs and alcohol. Most importantly, something needs to be done about the flagrant abuse of traffic laws.

We had a perfect demonstration of this ‘lawless’ attitude at the IISA conference held at Sun City in May this year. An intermediary stood up during the Q&A session following a presentation on the new AARTO traffic law enforcement system. He lamented the number of speeding fines he received while racing to meet his hectic calling schedule, saying his drivers licence would be revoked each and every week if the proposed system were implemented. The audience turned on him as one – shouting that he simply didn’t get it – and could solve his quandary by driving slower! We could dedicate a whole column to the psychology of crowds, but for today we’ll just ask: “How many of this heckling crowd had sped, jumped yellow lights, or skipped stop signs on their way to the conference?”

A question of infrastructure

We might also ask how many of them hit potholes! The final pillar in the motor insurance space is infrastructure & societal behaviour. The Department of Transport is going to have to play a major role in ensuring the country’s roads and road markings are significantly improved.

And all industry stakeholders will have to come together to re-educate South Africans on the importance of obeying the country’s laws (driving with a licence), maintaining roadworthy vehicles and insuring their property against unexpected events. The requirement for insurance is top of mind as the South African Insurance Association (SAIA) looks at ways of revitalising the motor book. One proposal is to implement mandatory third party insurance cover for all motor vehicles. This proposal will come as welcome relief to insurers, who – during claims recovery stage – find that up to 80% of incidents involve uninsured drivers.

Editor’s thoughts: The stakeholders in the short-term insurance space include clients, intermediaries, insurers, associated industries (towers, panel-beaters etc), law enforcement agencies and government. Do you think SAIA will be successful in getting all of these groups to ‘buy in’ to the mandatory third party insurance concept? Add your comment below, or send it to [email protected]

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