We have not had a situation in the modern history like we are currently experiencing with the pandemic caused by the C-19 virus. It is having a negative impact on almost every country across the world and nobody has a definite idea of where it came from, how long it will impact our daily lives and what the future will look like.
There will be a new tomorrow, but we don’t know what that tomorrow will look like. The world will become more interwoven with business, health organizations, social welfare, financial institutions and governments operating jointly on a continental and world-wide scale.
The insurance risk exposure will start to change in line with changing social and business structures and behavior. The “mix” of losses due to specific perils will change according to and in line with human behavior, new human structures and movement.
Less vehicles on the road and less movement of vehicles will mean a reduction in vehicle accidents and less opportunities for vehicle theft and hi-jacking incidences. Humans and technology will become entrenched far faster than envisaged a decade ago.
Eqstra’s income revolves around wheels and everything to do with wheels. However, we don’t know what will happen to the transport and vehicle industries. Will the ordinary man in the street need less vehicles, smaller vehicles, cheaper vehicles or no vehicles? Will public transport and taxis be the future to get from one point to another.
The longer it takes our country to break out of the lock-down the easier it will become to break out of the need to commute long distances over long periods of time to arrive at an office and spend hours on end in meetings. Business is re-inventing itself and the future is looking bleak for roads, wheels, fuel and the financing of it.
It is already estimated that only 40% to 45% of all vehicles on our national roads today is insured comprehensively under conventional insurance methods. Yet, industries have been built around the need for vehicle insurance and its ancillary services like vehicle repairs, replacements, upkeep and the vehicle rental and financing industries.
Insurers and re-insurers are already experiencing reductions in vehicle accidents and the expenses associated with it. Major risk carriers across the world have reduced their premiums for the next 2 months with up to twenty percent in anticipation of reduced loss ratios.
Let’s say that the vehicles on the South African roads reduce by 50% over the next five to six months and accidents reduce by 50% as well. Historical numbers have indicated and dictated to the insurance price-makers that you have to reserve at least 60% to 70% of your vehicle insurance premiums for vehicle accident repairs and ancillary costs. Drop the driving costs by 50% and you don’t have to be a magician to predict what is going to happen to this value chain.
Will insurers try and hold on to their underwriting profits that will start flowing in for as long as possible or will the next insurance premium price war start before the end of C-19?
Will insurance products change to reflect changes in insurance and business behavior? As more people continue to work from home why the need for conventional comprehensive insurance? Maybe the time has come to insure your vehicle for accidents only when you use it on public roads. The interactive use of vehicle tracking devices and intelligent insurance systems can easily charge a client for accident risks only when the vehicle is used.
Why insure it for accidents whilst it is standing in a safely parked area for days or weeks on end? Batteries are running flat whilst vehicles are being parked but insurers continue to charge that same premium as before.
How many panel beaters and tow truck operators will close their operations permanently in view of the anticipated changes of the vehicle industry. How will that change an industry that has been part of society since the advent of vehicles?
In fact, what will the vehicle industry look like soon?
The big challenge that insurers are facing is uncertainty. Is the reduction in risk a temporary situation or will society drive the change and demand the change that has remained almost the same for the last century? Will society, industries, finance, manufacturing and farming return to its old ways before C-19, or are the changes we are seeing now permanent?
If premiums are reduced too early, too soon, too enthusiastically, and the reduction in risk is only temporary then the risk carriers may get burned seriously with only the ones with the “deep pockets” having enough capital to see them through the then inevitable lean periods.
The only prediction that can be made with certainty is that the future has never been as uncertain as it is now (sic).
The following are specific suggested actions that you can consider should you be looking for potential premium savings.
You should not take any decisions in this regard without consulting your Broker who should have sufficient risk management resources available to help you with the correct advice for your specific circumstances and needs:
1. Higher Blanket Excess
Increase your excess on the policy to a higher blanket amount for example say R50 000 (or any other amount of your choice and that you can afford) on all claims.
You, as the client, will then have to carry all losses up to that amount (R50 000) and the insurer will carry the losses over R50 000. Keep in mind however that the excess applies to each incident per vehicle and not per collective incident. If you should suffer a fire or storm loss at your premises and 10 vehicles, for example, are damaged or destroyed at the same time, the excess to be applied will be the chosen amount per vehicle which is a collective amount.
2. Exclusion of Vehicle Accident Insurance
Another option that could be considered under the current circumstances is that all accident damage is excluded from the policy. This can be done by means of a specific endorsement and could be considered for all vehicles in lock up. It is important that you as a client fully understands the consequences of the type of risk that you are accepting on yourself, especially on vehicles where there are still outstanding finance arrangements in place.
3. Third Party Fire and Theft with Third Party Liability Cover
This cover type is ideal for higher valued vehicles that you still would like to cover for higher exposure to third parties but also for own damage or write-offs with regards to fire, and theft.
4. Third Party Insurance Only
This type of insurance can be considered for all your old vehicles with a low sum insured and that are no longer financed. It provides cover for any damage that can be done to the property of a third party when the vehicle is used on public roads and any other area where third parties might be exposed to your vehicles. The cover does not provide for damage to your own vehicle at all and that is why it should only be considered for lesser valued vehicles where it does not hold much asset value in the books of the customer.
5. Adjust the Insured Values
With your broker, reconsider the values of your vehicles. Some of them are insured on retail value whilst others may be insured on an “Agreed Value” basis. Obviously, a reduction in insured value will result in a corresponding reduction of the premium. Be careful of under-insurance though, as it may have other negative impacts.
Don’t let the lock-down get you down. Just remember, you are not alone in all of this – somewhere other people are going through the same trauma and challenges. Ask your Broker for professional help, or if you don’t have a broker contact us with your queries on firstname.lastname@example.org or through our website efm.co.za/financial-services.