Public happy to scrap bad driving 'subsidy' - First Link

SAFE, experienced drivers are delighted to scrap the system of de-facto insurance 'subsidies' that work in favour of higher risk motorists.

That's the assessment of First Link, the nationally represented insurance broker, following the successful introduction of its First Value motor insurance policy that is marketed exclusively to those with a good driving and claims record.

First Link, the short-term insurance arm of the FirstRand financial services group, launched the product for good drivers only in August last year.

Sales in the six months since then were four times better than anticipated, said Aryeh Klein, Managing Director, Personal Lines Division, at First Link.

First Value offers policyholders significant pricing advantages by redefining the risk pool and rewarding good drivers.

Klein added: "Motorists who drive safely and sensibly are delighted by the opportunity to distance themselves from those who are regularly involved in collisions or have no substantial track-record of safe driving.

"We created this motor insurance innovation as we were convinced there was great pent-up demand for a product that rewards the defensive and disciplined driver. This view has been substantiated by marketplace experience.

"First Value has surpassed all sales projections without advertising support. The success has been exclusively driven by word of mouth. Safe drivers have been proactive in approaching us and demonstrating that they qualify for a place in the First Value risk pool.

The quality profile has enabled the product to be marketed into 2007 without amending the pricing or the terms and conditions that were offered during the launch period.

Aryeh Klein noted: "This demonstrates the power of a selective approach to risk.

"In recent months, the short-term insurance industry has witnessed significant hardening of rates; especially in the motor insurance category. First Value customers have escaped the effects of these adjustments because they are isolated from the general risk pool where the claims experience continues to cause concern.

"By differentiating yourself from poorer risks you obtain a continuing benefit. The disguised subsidy payable to the other end of the risk pool puts a long-term drain on your premiums. It's worth your while to call a halt."

Mass motor insurance products provide cover across a broad risk pool. Traditionally, economies of scale have tended to work in favour of those who buy into big volume products.

The downside is that all types of drivers are covered - those who regularly claim against their motor insurance and those who hardly claim at all. South Africa's road safety record has become so poor that the traditional benefit of membership of a large volume risk pool can be more than cancelled out for those with a better-than-average risk profile.

Aryeh Klein pointed out: "When you can no longer expect to draw benefit from high volumes, why subsidise the bad driver by buying a mass market product? First Values success is driven by this fundamental question."

* First Value is underwritten by Regent Insurance.