Why is car insurance often so expensive?

The majority of people are driving without cover on SA roads, making it harder for those who have insurance to carry the financial burden.

There is a perception among some motorists that car insurance is often too expensive. Many motorists may not realise that the car insurance industry is actually under pressure for various reasons. Let’s see what is causing this, and how it could be solved.

Car insurance is not straightforward, and has many aspects to it. The following should not be construed as any advice, but only the views of others. Please consult a certified, financial adviser for any professional advice on available car insurance products.

Is car insurance too expensive?

According to a 2015 article by Moneyweb, the fact that car insurance is so expensive is the reason only 30% to 35% of South African motorists have car insurance. National Treasury wants to see a lowering of car insurance premiums to promote greater coverage of motorists. The insurance industry has countered that by saying it is paying for too many accidents caused by the general lawlessness on roads as well as by their generally poor condition. It is interesting to note that just to tow a vehicle makes up about 40% of an average claim.

High repair costs

High vehicle repair costs are exacerbated by the requirement that vehicles under warranty have to be repaired using costly ‘original equipment manufacturer’ (OEM) parts. The weakness of the rand has also contributed to the high cost of importing spare parts, placing great pressure on the sustainability of the short-term insurance industry.

The car insurance industry is informing motorists of the high cost of repairs and how this affects their premiums.

The challenge of carrying the 65%-57% of uninsured SA motorists

The fact that only 30%-35% of South African motorists are insured places the car insurance industry in a tight financial spot, as they are unable to claim funds from uninsured third parties. Two uninsured vehicles crashing into each other have no effect on the insurance industry, but as soon as uninsured cars are involved in accidents with insured cars, the insured motorist and the car insurance industry have to bear the financial brunt. Add to that the general lack of control of illegal drivers’ licences, non-roadworthy vehicles, and general lawlessness on our roads – all due to lack of law enforcement – then it’s no wonder the short-term industry is facing an unsustainable financial situation.

Difficult to reduce premiums

With 30%-35% of insured motorists financially carrying the remaining 65%-70%, it means that it is not possible for general insurance companies to make their products more affordable.

What is the solution to current expensive car insurance costs?

It is no wonder that the car insurance industry has been putting pressure on government for years to make third-party insurance compulsory for every single motorist. You can imagine how this will take away the current financial pressure on the industry, releasing it to be in a strong position to reduce premiums. For the first time, the currently uninsured 65%-70% of motorists would at least have a fighting chance to recover financially from an accident.

Innovative car insurance products are urgently required for the uninsured

There is no point in repackaging existing products, but rather the industry needs to develop new and innovative, affordable products that will cover more financially challenged motorists.

Collaboration brings success

A good example of how collaboration can bring success is when Business Against Crime SA, the insurance industry and business in general joined hands with the South African Police Service. As a result, the number of hijackings was drastically reduced, bringing much relief to the insurance industry from fewer claims.

The future

The South African insurance industry has a bright future. It is filled with a ‘can-do’ attitude, innovation and tenacity. It is important for insurers to have a forward-thinking approach to provide South Africans with affordable car insurance.

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