Santam, Hollard implement premium increases South Africa’s largest short-term insurer, Santam, confirms that it has implemented segmented premium increases, in line with client risk profiles. “Bad risks will attract higher premium increases than good risks,” Donald Kau, head of corporate affairs at Santam, tells RISKSA. Pierre Geyer, MD of Hollard Select Brokers and Underwriting Managers (HSBU) says that in the current environment it is unavoidable for most, if not all, local insurers to put through premium increases, particularly for motor risks. “It is likely that underwriters are considering doing this, including Hollard,” says Geyer. Etana Insurance will also be increasing its rates, MD Nash Omar tells us. “The current rating levels are not sustainable, bearing in mind the losses that short-term insurers have experienced over the last 10 months,” says Omar. "Rates have been falling for the past 10 years or so, while the cost of claims and the frequency of certain claims classes has been ever increasing. Some insurers are writing business at unsustainable rates." Kau agrees, adding, “Premiums have in many cases remained flat or largely lagged inflation over the past years. We have to factor in the fact that risks on the ground remain high, as we experienced with the fires, flooding and hail events at the end of last year and in the first quarter of 2013." “These factors must reflect in pricing if insurers are to be able to put clients back in the same position after a claim. Building costs and motor vehicle repair costs, despite car values going down, are not decreasing and premiums must adjust if customers are not to find themselves underinsured.” Industry commentators constantly lament the fact that premiums for most lines of short-term insurance business are way below where they should be. Cut-throat competition has demanded that insurers slash their rates in order to hold on to their customer base, but the obvious downside is a poor underwriting margin, which can eventually lead to insolvent insurers. Clearly keeping rates too low is unsustainable, as Regent Insurance’s recent cancellation of personal and commercial lines policies demonstrates. But it looks as though the tide is turning and rates will increase across the board. Risk-rating vital Geyer cautions, however, that blanket rate increases applied indiscriminately to all clients, regardless of their loss history and risk profile, are highly undesirable. “Invariably this approach creates churn, since good risks tend to subsidise poorer risks, causing better clients to shop around for lower rates.” He says it is more effective if rating adjustments are applied to individual clients, dictated by performance and risk profile, instead of the performance of a portfolio. “Although this approach takes longer, it produces more sustainable and equitable results,” he continues, raising the issue of new business rates. “All too often premium increases are applied to existing clients, but new business is still written at the old or discounted rates, contributing to churn from one insurer to another. This is counter-productive for the market, but also for clients because eventually those that are paying too little will be subjected to sudden and severe premium adjustments that they are unable to cope with. This may result in policyholders opting for sub-optimal cover or even cancelling cover altogether.” Auto & General, MUA weigh in “Consumers will have to tighten their already taut belts in 2014 as insurance premiums are set to increase,” says Leon Vermaak, CEO of Auto & General. “For insurers, motor vehicle repair costs have increased significantly due to the depreciating Rand, which impacts the cost of spare parts. In addition, most cars contain advanced safety features and electronic gadgetry. The price to replace these features and gadgetry is resulting in substantial increases in repair costs for even minor collisions,” Vermaak explains. While consumers may argue that since their vehicle value is depreciating year on year, their insurance premiums should decrease too, Vermaak points out that the cost of repairing a vehicle this year will be substantially more than the same time last year, even though the vehicle’s value may have depreciated by as much as 10 to 15 per cent. “It must also be pointed out that accident claims, where the vehicle is written off, count for less than 10 per cent of all motor claims,” he says, adding that Auto & General update their clients’ car values on a monthly basis, but any benefit gained as a result of the depreciation in vehicle value is offset by the cost of repair. Christelle Fourie, MD of MUA Insurance Acceptances, a specialist insurer catering to high net worth individuals, agrees that the cost of repairs is one of the biggest problems currently facing the sustainability of the South African motor industry at the moment. “In some exceptional cases, we’ve seen an increase as high as 40 per cent in the cost of repairs for certain vehicle makes and models. While the frequency of claims has remained relatively stable, we have seen a marked increase in the total cost of claim. This is across motor and home claims,” she says. Fourie says the insurance industry has also been impacted by a marked increase in claims related to natural disasters, which has affected profitability. Hail storms in Johannesburg, flooding in Limpopo and the Vaal, as well as the fires in St Francis Bay and Hermanus dealt the industry a heavy blow over the past 12 months. “We have noted that a number of leading insurers have implemented general premium increases in order to return to profitability. As a result, it is important for South African consumers to start factoring the possibility of a potential increase into their insurance premiums in the near future, including their home, contents and car policies,” she says, noting that in times of currency volatility, it is important for consumers to conduct regular valuations on their insured goods to ensure that they will be in a position to adequately replace such items, particularly any purchased overseas. “While it may not be practical for clients to re-value their entire contents every time the Rand dips or rises, it is a good idea if there has been a sustained period of Rand strength or weakness to look at the replacement cost of expensive goods in the home that have been imported.”
Posted on: Fri, 28 Jun 2013 09:10:35 +0000
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