The sum of its parts
- Dominic Uys
- Mar 4
- 3 min read
Published: March 2014
Description: A feature article for RISK Africa on the state of the car insurance industry.
The pricing, supply and increased sophistication of car parts have changed significantly over recent years. As a result, both the insurance and the repair industries are watching the playing field transform; the need to adapt becomes ever clearer.
Zurich Insurance reports that its write-off numbers for damaged cars have increased steadily from a total of 2 991 cars in 2011 to 3 767 cars in 2013. Hollard also confirms that the company has seen a five per cent increase in its write-off frequency over the past 12 months.
This is in part due to the increase in both the severity and frequency of motor accidents on South African roads. “There are far more vehicles adding pressure to already limited infrastructure with less experienced drivers. Insurers were under pressure last year because
of this and also had to contend with additional storm and hail damage claims as well,”
Debbie George, general manager at Infiniti Insurance comments.
This is, however, not the only cause for the increased write-off rate. While downplayed by most insurers, the repair of cars, even with light damage, is becoming increasingly more complex. “Even the most basic vehicles now have air bags; if these are deployed in an accident, together with the body damage the repairs costs often exceed the 70 per cent benchmark for declaring a vehicle uneconomical to repair,” George comments.
“With the influx of foreign cars on the roads and the depreciation of the Rand, acquiring parts from international markets can be costly,” adds Cloud Saungweme, chief claims officer at Zurich South Africa. As the Rand continues to struggle against foreign currencies, original equipment manufacturers’ (OEM) prices continue to go up. The outcome of this trend will be felt throughout the industry for quite a while.
Premiums on the rise
According to Anton Botha, general manager at Hollard Insurance, the company’s historical data shows a significant correlation between the South African collateral protection insurance
and parts prices – much more so than the correlation with other major currencies.
Botha states that the timing and total direct impact of weakening currency also depends on
the following:
• The Rand depreciation against the countries that the parts, paint or vehicles are being
manufactured in. For example, deterioration against the US Dollar may be off-set by a
strengthening against another currency.
• The manufacturing capacity and size of the stockpiles of parts, paint or vehicles at the manufacturers. The general rule of thumb is that the larger the stockpiles, the greater the delay in the effect of a change in exchange rates.
• Supply and demand of alternative or second-hand parts through alternative parts manufacturers and save-a-car campaigns. Over the past 18 months or so, there has been a big drive towards sourcing alternative/used parts to repair vehicles that are no longer under manufacturer’s warranty.
While Botha points out that an increase in parts prices has played a part in a gradual increase in policy premiums, Gari Dombo, managing director of Alexander Forbes Insurance, adds that the insurance industry cannot simply lighten its own pressures with premiums increases.
“In SA it is currently estimated that only 40 per cent of cars are insured and this speaks to the consumer’s willingness or ability to pay for insurance. To remain competitive and stay
in business, insurers have to continually look for efficiencies to keep the price of insurance
down,” he says.
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