Better enforcement needed in a key industry sector

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While the first day of the 2015 Insurance Conference held at Sun City set the scene of the South African short-term insurance industry, day two of the conference was spent focusing on specific areas of the industry and the factors that influence it.

The second day was opened by Lize Lambrechts, CEO of Santam, who gave her insight into an industry which she has only been in for three months. She said that after spending so many years in the life industry, the short-term sector opened her eyes and that she now appreciates the role that shared value can play in the growth of the industry.

The great disservice

The motor sector is one of the largest contributors in the country’s overall insurance industry. Seamus Casserly, Director of firstEquity, pointed out that 50% of premiums in the short-term industry are motor related, despite the fact that only 35% of all vehicles on South Africa’s roads are insured.

Casserly was part of a high level panel discussion which also included Wayne Duvenage, CEO of the Opposition to Urban Tolling Alliance (Outa), John Melville, Executive Head of Risk Services at Santam, Willem Smith, Managing Director of Personal Lines at Hollard and Dr Eugene Watson, CEO of the Road Accident Fund.

We are all aware of the pressure that is being put on motor books and the high level of accidents that insurers face. Sometimes it could be argued that they are simply handing money hand-over-fist.

“We are all aware of the state of the industry,” said Duvenage, “Outa believes that government and the industry is simply not doing enough to challenge the status quo regarding road safety. It is not business as usual for insurers. If we carry on like this we are doing society a disservice.”

Turning a blind eye

Casserly was just as candid, but no less controversial. He said that the main problem in the industry is lack of enforcement. He asked how often drivers notice other vehicles going through red traffic lights or talking on their mobile phones while driving.

Again, there is a problem with the enforcement in accidents. To a policyholder it is almost criminal to know that almost 40% of the cost on a R20 000 claim goes towards towing the vehicle.

The controversy never ended there. Casserly pointed out that if society is going to be casual about flaunting the rules, which affects insurers, perhaps insurers should implement policies which only pay out when you drive within the rules. “If you skip a red robot, perhaps insurers should not pay a claim. If you talk on your phone without using a hands free device, perhaps the same should apply,” said Casserly.

The insolvent defender

Perhaps the most startling revelation on the day was the fact that the Road Accident Fund (RAF) has been insolvent since 1981. This is despite the fact that they receive a lot of funding through the general fuel levy.

“The problem with the RAF is that the company was not capitalised by government at its inception. While the public thinks that we are well funded, we are even further from solvency now than we were thirty years ago. We actually have a deficit of R115 billion,” said Dr Watson.

He also pointed to another contributor to the problem. Because the RAF is so effective in settling claims, it is currently outstripping the money it is receiving from the fuel levy. While this was a valiant attempt to explain the problem, one wonders if it is an issue of effectiveness as Dr Watson put it, or a case of the RAF being wholly unable to identify a fraudulent claim from a genuine one.

The great e toll situation

Duvenage was never going to be able to leave the stage without being asked about his company’s position on the E-toll situation. Duvenage said that while he is opposed to the system as it stands, he is not opposed to a pay-as-you-use system. “If government was using the money from E-tolls to improve the public transport system I would gladly install an E-tag. But there was no public consultation and we should not be asked to fund road improvements which are also getting funded through tax payers money,” said Duvenage.

He was quick to quote Colombian politician Enrique Peñalosa, who said that the sign of a developed society is not if a poor person can own a car, but if a rich person wants to use public transport.

However, this would decrease the cars on the road which would affect the short-term industry as it is already fighting for a small pool of business.

Editor’s Thoughts:
The motor industry does have its challenges. But how do we go about resolving them? While we may not need to be as drastic as Casserly suggests, perhaps there needs to be better enforcement in the industry. In that way, motor books won’t be under pressure and the RAF can return to solvency. Please comment below, interact with us on Twitter at @fanews_online or email me your thoughts jonathan@fanews.co.za.

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