Innovative approach needed from insurers to combat rising costs

Insurance companies are being forced to find increasingly innovative ways of keeping costs per claim under control in a market that is being buffeted by a range of cost pressures.

This is the view of Rachel Stevenson, principal consultant at Ovations.

According to Stevenson, insurance company costs are being influenced by a number of factors, including the following:

· Re-insurance rates around the world have risen due to various international catastrophes – although South Africa has been less affected than some markets, the local market is still subject to increased rates

· New entrants to the car market want all the “bells and whistles”, increasing the cost of claims when they arise

· Vehicle volumes have increased considerably over the past few years, increasing the likelihood of accidents

· The increase in the volume of imported vehicles on the roads, foreign exchange based replacement costs, longer lead times needed to source replacement parts and the resulting longer car hire rental periods are all affecting the cost per claim

· Deteriorating infrastructure (especially roads) is causing claims to rise - as many people are under financial pressure due to increases in interest rates, fuel prices, general inflation and the like, they are choosing to forego their no-claims bonuses to assist their immediate cash-flow and are submitting claims for minor incidents such as tyre/rim damage caused by potholes

· Not only have power outages been affecting the volume of claims for the replacement of household items, but freely available information about the times of load shedding may be contributing to increased incidents of burglary and housebreaking.

While these pressures have affected insurance companies, Stevenson is of the opinion that measures can be taken to reduce the cost pressures they are facing.

She suggests insurance companies can take some of the following measures to reduce their costs:

· Negotiate harder with service providers (such as panel beaters) on maintaining minimum stock levels on certain car model parts. This will enable cars to be repaired quicker, thus reducing the time that insurers have to fund car hire for their customers

· Use systems that enable automatic follow-up and reminder mechanisms, pressuring service providers to complete repair jobs quicker

· Become more innovative in negotiating discounts with suppliers for prompt payment and impose penalties for longer than necessary vehicle repair periods

· Adjust premiums by using trends analysis and business intelligence that provides valuable insight on the contributing factors to a wide variety of insurance claims – areas, ages, occupations, activities, vehicle models (to assist suppliers with stock requirements ) etc.