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Call for return to blanket third-party insurance

BY GILLIAN JONES

SHORT-term insurers are lobbying the government to introduce blanket third-party insurance for all motorists, to take the pressure off their margins while reducing the cost of insurance for the already insured.

Short-term insurers are pushing for compulsory insurance to increase the pool of clients, which would lower the unit price, said Alexander Forbes Insurance MD Gari Dombo this week.

The South African Insurance Industry Association has “engaged” the Department of Transport and the Treasury to introduce changes to the market, where only 40% of the cars on the road are insured for third-party property damage.

“This means only 4-million of the 12-million vehicles on the road are insured and your chances of recovery from a guilty third party are nil,” said Mr Dombo.

Short-term insurance industry rates are under immense pressure due to the large number of competitors and rising inflation, while the depreciating rand has resulted in the price of imported vehicle parts escalating.

Estimates that one in three insurance claims might be inflated or fraudulent adds to the pressure on margins.

The industry experienced two tough years, in 2012 and 2013, when it had significant increases in weather-related claims, which affected underwriting results. Claims followed massive hailstorms on the East Rand, and flooding in the Western Cape.

“This indicates that there is a real change in weather patterns,” said Mr Dombo.

This has an effect on the cost of insurance and reinsurance.

Mr Dombo said that some insurance companies had exited from certain business, such as crop insurance for farmers, because of the increases in weather-related claims.

“We have not seen the motor insurance sector being profitable … and many companies subsidise motor losses with non-motor (income),” he said.

South Africa had compulsory third-party motor vehicle accident insurance until 1997. This was replaced with the Road Accident Fund, financed through the fuel levy and covering only death and bodily injury.

The industry would have to increase premiums to survive, though Mr Dombo said Alexander Forbes would not institute across-the-board increases but rather apply them on a sliding scale, with larger increases for frequent claimers.

Another way in which insurers can reduce costs is through managing the procurement process to reduce the average cost per claim. Mr Dombo predicts that when the short-term insurers release results over the next two months, the “numbers will not look good”.

“This year is going to be a defining year for a lot of short-term insurers. After 2012 and 2013, something has to change,” he said.

Although the industry is taking strain, Mr Dombo does not foresee the closure of any short-term insurers this year.

“But there will be a behaviour change as we cannot continue to just compete on price. If we continue on this path there will be casualties,” he said.

Alexander Forbes has 75,000 clients and 500 staff. It has annual gross premiums of R1.4bn and administers R260m in premiums over and above that for other parties, while its claim repudiation rate is below 1%.

 

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