With the cost of just about everything going up at least people know what to expect and have planned for it in their budget that is until they find our that their car insurance premium has suddenly gone up.
Oswald Kuyler, head of Short-Term Insurance at Consult by Momentum, said that just as the average cost of a grocery basket has increased so has the price of an ‘insurance basket.’
“As a result of several macroeconomic factors – coupled with one or two ‘black swan’ events – insurers have seen a rise in their loss ratios, with many reporting a double-digit loss,” Kuyler said.
“They need to recoup these losses, and we can expect that short-term insurance, such as household contents and car cover, will cost around 10 – 15% more over the next few months.”
Kuyler shares four factors that have caused an increase in short-term insurance premiums:
The perfect storm
According to Kuyler, the impact of climate change and global warming has resulted in flooding, cyclones and severe storms becoming more prevalent.
“This has led to a rise in claims for damage to consumers’ vehicles, homes and goods. The April flooding in KwaZulu-Natal, for example, was estimated to have caused damage and losses to insured assets exceeding R15 billion,” Kuyler said.
Supply chain chaos
Kuyler said that motor vehicle repair and replacement costs have risen due to the major strain on the global supply chain cycle after the pandemic.
According to data released by Audatex which tracks vehicle parts inflation, some vehicle brands have seen parts inflation as high as 15.8% in March 2022 compared to March 2021.
Mandy Barrett, head of Aon South Africa’s business unit, said: “This means that the cost of vehicle repairs to insurers has gone up significantly and is likely to have an impact on insurance premiums for vehicle owners.“
We’re out and about
The pandemic and lockdown restricted human movement and social activity, which led to a drop in accident and crime rates allowing insurers to offer premium reductions.
With the easing of lockdown restrictions, more people are going out and are on the road, leading to a higher risk of accidents and an increase in crime.
Kuyler said: “Insurers may seek interventions to align with a more economically active economy, which could include rate adjustments, restrictions on cover or increasing the client’s self-insure portion excess.”
“South African problems”
Kuyler shares two factors that are driving up insurance costs:
– Load shedding has led to power surges that can cause damage to property as well as goods and the extended periods of darkness provide more opportunities for criminals, making households more vulnerable to theft.
– Riots and looting as a result of South Africa’s economic woes and turbulent political landscape are associated with vandalism and damage.
Kuyler said that insurers need to include these factors in their pricing models.
“Bear in mind that your insurer, too, is insured through a reinsurer, which provides them with financial protection for risks that are too large for them to handle alone. In the case of certain events, they will bear a significant brunt of the blow, which will be reflected in their rates to insurers,” Kulyer said.
“This will, in turn, impact what your insurance company charges you; either in the form of a premium increase or through remedial actions, such as an increase in your self-insure portion (excess).”
As a final piece of advice, Kuyler said people should seek the help of a financial adviser
“A qualified financial adviser can help consumers navigate their finances and keep them informed of changes in the insurance world that could impact their finances.”
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