A wrangle between Mutual & Federal and the South African Motor Body Repairers' Association (Sambra) has quietly unfolded in the national press and on various financial website in recent days.
The dispute came to a head when Sambra placed advertisements in The Star, a Johannesburg daily newspaper to draw attention to a recent article in the same publication alleging that Mutual & Federal was trying to force some Sambra members to use pirate parts in motor vehicle repairs. The practice is frowned on by vehicle manufacturers who insist on original equipment (OE) parts to avoid voiding vehicle warranties and for reasons of safety.
It seems that Sambra's actions were prompted by a number of members who were unhappy with changes to the terms and conditions in Mutual & Federal's new Auto-body Repairer's contract. These changes were part of a response to recommendations made by the Department of Trade and Industry (DTI) Codes of Good Practice to encourage principles of good practice in the motor vehicle repair industry, and resulted in Mutual & Federal undertaking an extensive eight-month review of their Motor Body Repairer Panel.
Mutual & Federal was quick to issue media statements to set the record straight: "The repair procedures specified by Mutual & Federal are designed to ensure that motor repairs and parts fitment are safe and of high quality. In addition, Mutual & Federal do not prescribe the fitment of parts which would invalidate the warranties of vehicle manufacturers, and therefore do not endorse or promote the use of pirate parts."
A meeting between the parties held last week Friday failed to resolve the issue and Sambra has since threatened a national strike in which they will refuse to repair vehicles insured by Mutual and Federal. In an article on Despatch Online, Sambra indicates that their profit margins are under attack and that Mutual and Federal's proposals are heavy handed and anti-competitive.
Serious industry-wide concerns as margins come under pressure
There is a more serious undertone to this media spat. Most of South Africa's short-term insurers have mentioned a shared concern in their latest financial result statements. Margins in the short-term insurance industry are coming under increasing pressure.
Motor vehicle replacement costs are on the rise under the combined onslaught of increasing import content and a devaluing rand. This results in much bigger insurance payouts on an ever increasing number of hi-jacked and stolen vehicle claims in South Africa. In addition, the cost of repairing vehicles is growing with each passing year.
Santam's 2006 results nicely encapsulate what many other short-term insurers are saying: "Underwriting margins remain under pressure, due to an increase in claims in the personal lines motor portfolio in particular." Sanlam added that "motor-related claims spend comprised about 85% of claims spend drawing mostly on motor body repairers, auto glass suppliers and tow-truck operators" Excerpts from Mutual & Federal's latest results show similar concerns: "There was also a substantial increase in motor vehicle repair costs, particularly in respect of imported vehicles where repair costs are significantly higher."
From these statements it is clear that insurers have two options available to them to address deteriorating profit margins. They can either reduce the value of motor vehicle claims or they can attempt to reduce the cost incurred in servicing such claims.
Compromise might be the only sensible solution
Insurers are not the only companies with problems. The overwhelming number of vehicle models and derivatives on sale in South Africa creates a logistics nightmare for companies operating in the vehicle repair and maintenance arenas. Original equipment parts can be scarce on discontinued models and on models imported in smaller numbers. Vehicle repairers also find it increasingly difficult to find original equipment parts for older vehicles. Their profit margins are also under pressure from rising costs on the one hand and demands from insurance companies to cut repair bills on the other.
Common sense will have to prevail in the industry. Going forward, short-term insurers may have to resort to more accommodating policies in determining what constitutes acceptable practice in vehicle repair. We suggest safety as the non-negotiable primary concern thereafter part availability (time) and cost.
An accommodating approach is already evident with Mutual and Federal admitting: "In only one exceptional circumstance would we allow the fitment of [pirate] parts where the policyholder insists that we do so in cases where the vehicle would be uneconomical to repair and otherwise be written off." If one exception can be made, we dont see why others cannot be created over time.
Editor's thoughts:
It is in the short-term insurers' interest to maintain high standards of repairs to accident damaged vehicles. Escalating costs are putting pressure on profit margins in all sectors of the industry. The result is that insurance companies, intermediaries and vehicle repair institutions are all under pressure to explore and implement cost cutting solutions. Are you aware of any insurers who insist on using pirate replacement parts? Send your comments to gareth@fanews.co.za
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