Who Owns Whom

The frightening statistic we get from the latest WOW report on the short-term insurance industry is that about 70% of vehicles on the South African roads are uninsured.

The issue of vehicle insurance is a bit complex for consumers and insurers. With the current economic uncertainty and cost of living, some consumers choose to cut back on insurance. The barriers to entry for SMMEs in this sector also add to the complexity and reduces competition.

Because of the very high proportion of uninsured vehicles, one is practically forced to take out Omnium insurance where your insurance company repairs your vehicle regardless of whether they recover from the third party to the extent possible.

One wonders why third-party insurance is not made compulsory in South Africa. Compulsory third party insurance would in fact also take a large chunk of the administrative burden from the Road Accident Fund (RAF), which is currently sitting on 39,000 claims that are 5 years old plus another 7,000 over 10 years old. Private insurers would assist in improving efficiencies in that regard.

Considering that RAF only covers physical injuries to persons, not material damage, the saying “Justice delayed, justice denied” gets a very ominous meaning; the delays at the RAF are ruining the lives of injured people’s lives who cannot pay their hospital bills. RAF could focus on dealing with accidents where uninsured vehicles are involved. They could also play a critical role in assisting the SMMEs in this sector with guarantees for capital requirements. Even though there have been great improvements and programmes put in place to assist the new entrants, the very low numbers of successful players illustrate the need for additional support or amendment of regulation.

Going back to the compulsory system – whilst is not necessarily fool proof for it can be manipulated, it is worth a thought. Annual payments and the submission of proof to obtain a license renewal disk would nudge towards such a solution. The system can contribute to a significant increase in the number of insured vehicles and avoid the splitting of premiums into monthly payments. To avoid defaults on payment, financiers can structure an arrangement where they finance the annual premium each year.

This will address the situation of having so many financed vehicles driving around uninsured, in transgression of the financiers’ conditions. According to the latest WOW report on short term insurance, in Jan 2022 41,382 new vehicles were sold and 13,038 (40.8%) were financed besides 31,954 used vehicles being financed. It would be very unusual that non financed vehicles (wealthy buyers) would all remain uninsured. Many of the monthly insurance policies have lapsed without follow-up.

However, imagine the additional premium income if 100% of the vehicle park would be insured? Omnium insurance would no longer be a necessity for many, in the knowledge that careful drivers would always be reimbursed for the repair costs. Less careful drivers would still have the option to take out Omnium insurance so that their costs would be covered in case of own liability in an accident. Overall the Short term insurers would disproportionally gain and if competition remains good that would translate into much lower premiums for the consumer.

It would also do away with the injustice of losing bonus points and getting slapped with higher premiums if your insurer is incapable of recovering from the third party.

Insurers have also admitted that repairs have become expensive. It’s a two edged sword. It increases the necessity to have insurance whilst it makes such insurance less affordable. This is not helped by the panel beaters’ insurance accreditation requirement. The accreditation system has only achieved to push the cost of repairs to higher levels, which eventually feeds back into higher premiums.

As the WOW report on short term insurance points out, short term insurance is not an easy business. The cost of moving from one insurer to another is non-existent and happens frequently, especially now that so many consumers are cash strapped. Consumers are continuously bombarded by cold callers enticing them with cheaper premiums.

Beneficial to insurance companies, short term insurance remains a necessity for consumers to preserve the value of items they cannot afford to lose.

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