If you drive on South Africa’s roads then there is little doubt you will, at one time or another, be involved in a motor vehicle accident causing damage to your own and, probably, other vehicles. As long as your vehicle is comprehensively insured you need not worry about the financial implications of such an event.
Over the past year or two vehicle insurance purchase decisions have become increasingly difficult as a multitude of new short-term insurers and different products come to market.
How do you decide which insurer to go with?
Danny Joffe, legal director at Hollard Select Brokers, says there are two things you should consider when looking for a short-term motor insurer. “You should first look for a product that provides fair and proper cover without transferring the risk back to you, by way of large excess payments or tight policy wording,” he says. “And secondly, make sure your insurer offers efficient, fast and professional service.”
There is nothing worse than being left in the lurch by your insurer at claims stage. “Consumers should look for insurers with a trusted brand and who offer a hassle-free claims process,” says Steffen Gilbert, CEO of Discovery Insure. He suggests that consumers look for companies that operate ethically and have policies that are fair and in plain language. “It is important to understand that cheaper doesn’t always mean better,” he adds.
Many consumers stick with the tried and tested brands such as Mutual & Federal and Santam (in the broker-assisted insurance space) and Dial Direct and Outsurance in the direct insurance space. An important decision is whether to go with a direct insurer (where you purchase your insurance by telephone or over the internet) or to purchase insurance through an insurance broker, who then places your business with an insurer on your behalf.
Don’t be fooled by the television adverts promising the direct insurers will bypass the middle man, because each ‘type’ of insurance has its advantages and drawbacks. “Because Santam is an intermediated brand and works via brokers, we believe that brokers can add value to consumers by being able to compare value propositions of different insurers and give the best advice to their clients based on the complete package — not just cheaper premiums,” says Shehnaz Somers, Head of Personal Lines at Santam.
“Insurance is a risk-transfer mechanism and as such consumers should understand the product that they are buying and the differences between the products offered by various insurers.” Once you’ve decided to go direct or through a broker — and selected the insurer that makes the most sense — there are a number of ways to reduce your monthly short-term premium.
“You could consider carrying part of the risk yourself instead of passing the entire risk on to the insurer, says Gari Dombo, MD at Alexander Forbes Insurance. You can do this by increasing your excess, the first amount payable in the event you have a claim. You must, however, make sure you can afford this excess in case you’re involved in an accident.
A popular money saver is to opt for third-party, fire and theft cover instead of fully comprehensive cover. “With this option, no cover is in place for damage to your own vehicle following an accident,” says Dombo. “But in a country where about 60% of vehicles are not insured you also run the risk of failing to successfully claim from a guilty third-party if you are involved in an accident.”
You carry risk in the event of an accident, even in circumstances where you are not at fault. Santam welcomes any steps taken by its policyholders to reduce risk. “We encourage policyholders to be proactive in their management of risk,” says Somers. “One of the ways we encourage a change in risk management behaviour is through our online calculator which policyholders can use to determine whether they are correctly insured for buildings, vehicles and house contents, thereby ensuring they are not at risk of being under-insured.”
There are numerous new innovations that allow insurers to offer ‘bells and whistles’ with their everyday insurance offerings. Telematics is the buzzword in the short-term motor space. It’s the evolution of the good old vehicle tracker — first popularised as a tracking and recovery tool to assist in recovering cars in the event of vehicle theft or hijacking — and tailored to provide minute-by-minute feedback on your driver behaviour.
This technology could, over time, allow insurers to move away from the traditional risk rating measures such as age, how many years driving experience you have, what your individual ‘claim free’ period is, the make and model of your vehicle etc. By installing a telematics device, motorists can proactively influence their insurance premium by how they drive.
The first company to ‘measure’ driver behaviour in South Africa was Hollard, which introduced its Pay As You Drive offering in 2006. “Hollard’s Pay As You Drive product has been using telematics for the past five years,” says Shaun Neuhoff, Head of Pay As You Drive. “Premiums are based on distance as an additional rating factor so the telematics device is used purely to ensure Hollard charges the correct premium based on the actual distance the insured vehicle travels.”
And the next evolution of the product will be to include elements of “How You Drive” in the premium calculation process. “The magic of telematics is it allows insurers to measure risk on a more personal level than before,” says Neuhoff. Over time the industry will be able to develop a one-to-one pricing relationship between insurer and insured, at which stage the good drivers will no longer be asked to subsidise the bad.
“The key benefit of telematics is that people become more aware of their own driving habits and thereby adjust their behaviour to be less risky,” says Dombo. “An individual will pay more or less for his motor insurance premiums depending on the personal, measured driving profile.” Insurers are queuing up to follow Hollard’s example.
“In February 2011, Santam launched LiveTrack, a driving behaviour device that gives policyholders as much as 20% discount upfront,” says Somers. Diversified financial services group Discovery Holdings has leveraged the technology to enter the short-term insurance market.
“Discovery’s VitalityDrive programme used DQ-Track, the latest motor vehicle telematics technology, and proprietary algorithms to develop a scientific measure of driver behaviour, known as the Driver Quotient (DQ),” says Gilbert.
“Our approach with Discovery Insure has been to build on traditional models and to reward consumers for driving better. In doing so we are confident that we can get consumers to change their driving behaviours, experience lower claims and then pass such benefits on to consumers in the form of rewards.”