Car Insurance in South AfricaSince July we have written quite a bit on car insurance on this Blog. This has been an eye opener for me and a bit of a learning curve as well. In my 9 years in the financial services field I have worked as a registered compliance officer and a financial advisor on pension funds. I was not much involved in the short term insurance industry and I must admit that quite a bit of research and consultation were required for some of the blog posts in this car insurance blog.

As I reflect over the written contributions for the past 6 months, I would like to share my personal belief that the car insurance industry offers much value to insurers who are willing to work hard at product development, administration, communication and marketing! I would like to take a moment, consider some of the findings and realities in the car insurance industry, do some “scenario planning” and share my thoughts.

Size of the vehicle market in South Africa

The vehicle population statistics from eNaTIS reveals that on the 30th of October 2009 there were 9,576 285 registered vehicles in South Africa. This would then also be the number of “insurable vehicles” and an indication to the size of the potential vehicle insurance market. The South African Insurance Association however confirms that only approximately 30% of these vehicles on our roads are insured!

From these statistics it is clear that there is huge potential for car insurance business in South Africa. Insurers need not only fight for new vehicles to be insured or to convince vehicle owners to move from their existing insurers – there are about 70% of the vehicle population that have never been insured!

The need for car insurance

But why are there so few insured vehicles in South Africa? When compared to the US and European countries the most obvious explanation is that it is not required by law that vehicle ownership should be insured. Many vehicle owners try to save the extra expenses by taking the risk to drive uninsured vehicles. And is this a risk?

Most definitely! In 2008 alone there were more than 14,057 fatalities from road crashes on South African roads! These fatalities are only a fraction of the serious accidents and accidents without injury! All the listed injurers on the JSE have in the past 12 months expressed concern pertaining to the affect of vehicle accidents on their bottom-line and the need to increase car insurance premiums.

Another alarming fact to consider is the crimes statistics and the damage and vehicle loss caused by hijackers, thieves and crime syndicates. It is well known and reported that many crime syndicates focus on vehicle theft to supply these vehicles across the borders to neighbouring countries such as Lesotho, Botswana, Zimbabwe and Mozambique.

These statistics and the strong financial results from vehicle recovery companies should provide more than enough motivation for car insurers to actively pursue vehicle owners and offer them the correct car insurance products.

Political Landscape in South Africa and changing vehicle ownership

Insurers have recognized a significant change in vehicle ownership since 1994. Empowerment transactions and BEE strategies have made it possible for a large part of the previously disadvantaged communities to acquire vehicle ownership. Whereas the age of the driver was previously one of the most important requirements in risk assessment, it has now moved a bit towards “years of driving experience”. Many new vehicle owners in their 30’s, 40’s and 50’s have entered the market and are potential car insurance policyholders.

It is also important to note that many of the older new entrants to have become vehicle owners are salary earners in the higher end of the income scale and more likely to be able to afford insurance premiums than those vehicle owners in their early 20’s.

Technology, Direct Insurers and Aggregators

Advances in technology and increased connectivity are changing the South African insurance industry. During the past few years much of the market share has been grabbed by the direct or online insurers. New insurers have entered the market and we have seen the creation of several insurance aggregators.

Not only is it expected that broadband connectivity will increase significantly in the next 3 years, but so too the comfort and desire amongst the South African consumer to go online for car insurance needs!

Car insurers will strive to be innovative to meet the desires of a new online consumer. Those insurers without a strong online presence or shareholding in online insurers will struggle to survive in the shift towards easily accessible and affordable car insurance!

Conclusion

We have experienced a turbulent 12 months in the banking and financial sector. The South African car insurance industry might be heading towards turbulent times as well – not driven by fear and concern – but rather by innovation and opportunity!

May we be able to assist as many vehicle owners as possible to make informed decision and find affordable insurance for their vehicles! The more insured vehicles on our roads, the better for road safety in South Africa!

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