Unpacking the mystery of vehicle insurance costs

How your age and lifestyle, behaviour patterns, and even your personal taste combine with the changed realities of South Africa's driving environment have a surprising impact on the cost of your insurance premiums.

Gari Dombo, Managing Director, Alexander Forbes, Insurance says that, "Traditionally, 18 to 20 year olds were seen as having the greatest chance of being involved in an accident. By the age of 30, however, most drivers were professionally settled, worked regular hours and had established a safe and familiar routine. Debt levels were high and people lived a relatively predictable and conservative life.

"From about age 40, however, children needed to be taken to school and afternoon activities. Vehicles were used more frequently and a lot less predictably. As such accidents increased. Further into their 40's and 50's accident frequencies rose even further as kids started driving lessons and began using their parents cars. Post 60 the kids were out of the house and accident rates fell sharply."

Dombo explains, "In short, age correlated nicely with driving experience and premiums were easily calculated." 

Post 1994 political changes and, more recently, BEE, has, however, altered these traditionally predictable patterns.

"Nowadays there are a lot of 40-year-olds out there with 1-year-old drivers' licences. In short, there are a lot more older, inexperienced, drivers on the road. This is increasingly factored in to premium calculations."

Dombo adds that, "Also, the way cars have changed has also influenced premiums. Today there is a bigger concentration of value around small cosmetic issues that frequently go wrong - and are expensive to fix."

For example, "Expensive radios, air conditioners, leather seats airbags and fitted sensors all cost a bit. These things can be damaged and require repairs or replacing. As such the kind of vehicle accessory choices you make directly impacts your premium."

Furthermore, given that very few cars are ever written-off and need to be replaced completely, the bulk of insurance payouts are incurred on smaller bumper-bashing type incidents. "Since a small R120 000 run-around vehicle now comes with air bags, and replacing a popped air bag could cost R25 000 alone, covering a small incident like this can amount to 20% of the value of the vehicle. This will inevitably be reflected in the premium."

Moreover, "If you are in an accident that is not your own fault and the guilty party is not insured, your insurance company will have to fork out."

With speculation on the figure of uninsured vehicles as high as 60%, Dombo adds, "Insurance companies know their chances of recouping payouts from third parties are statistically slim. Once again, this changed reality is reflected in increased premiums."

While an increase of vehicles on the road is ostensibly good for the vehicle insurance business, increasing the amount of cars and new drivers without a parallel expansion in infrastructure is resulting in more accidents.

While having a tracking system always attracts a discounted premium regardless of model, Dombo continues that, "The premium applying to different vehicles varies widely. Purchase price aside, older vehicles are often stolen for their parts. Hence the older certain cars get, the more expensive it could be to insure them. The depreciating value of your car as it ages is often camouflaged by these other factors which drive premiums up."

This explains the counter-intuitive phenomenon of premiums increasing even as vehicles get older and lose value.