The long journey to short-term insurance sustainability
The sustainability of the short-term insurance industry depends on the various industry stakeholders striking a balance between their respective needs, wants and responsibilities. Insurers must balance their profit motive with that of the insured’s requir
The answer varies from one stakeholder to the next. Individuals (the insured) benefit from a strong motor insurance industry through affordable premiums and the assurance of swift repair or replacement in the event of theft or accident damage. And the domestic economy benefits through the myriad small and emerging businesses providing distribution and vehicle tracking services (pre accident) and repair and towing assistance (post accident) to name a few. Motor vehicle manufacturers benefit too, because comprehensive motor insurance is a prerequisite for vehicle finance, without which new vehicle sales would grind to a standstill. Given the insurance industry’s massive socioeconomic footprint it makes sense to tackle any obstacles to sustainability as a matter of urgency.
Market saturation is a critical sustainability factor...
Motor insurance penetration stands out as a top priority. “Less than 40% of South Africa’s car park is insured – and that’s one of the areas we really need to work at,” said Pearson. The SAIA is actively lobbying government to reintroduce compulsory third party insurance as one of many projects aimed at addressing affordability and financial inclusion in the short-term motor insurance space. Insurers will be hoping the SAIA can emulate the successes achieved to date in combating vehicle hijacking… Since 2002 the combined efforts of Business Against Crime South Africa, the SAPS and SAIA have reduced hijackings by half!
Success should not lull industry stakeholders into complacency. The combating of vehicle crime and short-term motor insurance fraud remain top priority at SAIA. A number of ongoing SAIA Motor initiatives are therefore aimed at reducing vehicle theft, hijacking and subsequent licensing irregularities. The Automatic Number Plate Recognition (ANPR) project assists in ‘spotting’ stolen vehicles at various border points while the SA Insurance Crime Bureau (SAICB) is hard at work to stamp out insurance claims fraud. A recent victory in this area is legislation that requires motor vehicle manufacturers to apply Microdots (a vehicle identification safeguard) to all new vehicles…
Short-term motor insurers posted reasonable results in 2011 and look certain to repeat this achievement in 2012. Profitability is up across the sector, making it possible for major players to maintain or even reduce their client’s insurance premium. It is difficult to know whether these improvements are ‘pay offs’ from various industry initiatives or due to an upward trend in the short-term insurance cycle… “We are in a situation where [these improvements can be ascribed] to the normal short-term insurance cycle,” said Pearson. But there is no disputing tighter controls over costs and leakages (by insurers) and continued anti-crime initiatives (by BACSA, the SAICB and SAPS) are playing a part.
Closing the book on crazy parts prices
One of the reasons for the improved motor insurance underwriting margin is the decrease in original equipment (OE) part prices. Pearson said that this decrease was in part due to a stronger rand, and partly because of successful conversations between OEMs and SAIA. Why the fuss? Spare parts – perhaps because of the requirement for OE parts in repairs – cost insurers in the region of R16 billion through 2010. Insures, manufacturers and Motor Body Repairers (MBRs) are not only talking about how to reduce OE part prices – but also on the possibility of incorporating Certified Aftermarket Parts in the vehicle repair process.
Interested stakeholders in the CAP debate include insurers, brokers, underwriting managers, MBRs, consumers, and others… These non-OE parts can go a long way toward enabling quality and affordable repairs, and if widely adopted could result in more accident damaged vehicles being declared economical to repair. This in turn would reduce fraud risk during the salvage process... Many stumbling blocks will have to be overcome before CAP becomes a reality, including manufacturer warranties and design patents!
The way forward
It is impossible to implement far reaching changes overnight. The SAIA Motor strategy incorporates a number of projects aimed at meeting the industry’s needs without shirking its responsibilities. One of the biggest challenges will be to replicate the successes in reducing vehicle crime into the road safety arena. Initiatives to address driver behaviour and improve road infrastructure require input from the Deportment of Transport (DoT) and Road Traffic Management Corporation (RTMC) as well as various traffic authorities.
Industry representatives are also in talks to plug the many loopholes in the current wreck management and salvage management processes. The SAIA Code of Salvage is being updated in an attempt to tie up the loose ends currently being abused by criminal syndicates, particularly in cloning vehicles. “Companies must strike a balance between generating return on salvage activities versus the long term goal of fighting the cloning of vehicles,” said Pearson.
Consumers want to be able to travel to their destinations on safe, well marked and well policed roads. They want to travel without the threat of hijacking or vehicle theft. And they want insurers to put them in the same position after a loss or accident as they were before. Although the SAIA represents South Africa’s short-term insurers it understands the critical link between its member needs and those of the consumer. That’s why the SAIA Sustainability of Motor Insurance vision is to “create an environment where all South African motorists have access to affordable and sustainable comprehensive motor insurance and to increase road safety and decrease vehicle crime.”
Editor’s thoughts: SAIA’s Sustainability of Motor Insurance strategy identifies numerous risk components responsible for driving costs in the short-term motor industry. These include drivers, insured drivers and other road users, vehicles, roads, crime, supply chain, data and industry relationships. Would you single out one of these risk components for immediate attention – or do you believe they should all be tackled simultaneously? Please add your comment below, or send it to [email protected]
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