Christiaan Steyn
There are universal questions that car insurance customers ask insurers regularly, and though cover differs from insurer to insurer, knowing the answers to these questions could improve their customer experience – particularly when claims are made.
Why does your premium increase even though your car’s value decreases every year?
The value of a car depreciates over time, meaning it is worth less than it was a year ago, for two reasons. The car ages, meaning its future lifetime gets shorter and shorter and the mileage increases every year. A car with higher mileage is worth less than the same car with lower mileage.
So why don’t car insurance premiums go down every year if the vehicle is worth less than it was a year ago?
Premiums tend to increase in line with inflation over time. The value of your car is only relevant when your car is stolen or written-off and these types of claims only make up around 15% of all insurance costs. Therefore, the value of your car has a relatively small impact on your premium. Roughly 75% of insurance costs are spent on repair costs (parts, paint and labour) and the cost of repairs goes up year on year. It doesn’t cost any less to replace the bumper on a one-year-old vehicle than it does on a brand new one. Doing the same repair job to the same car will cost more in future years, even though the value of the car is less. The result is that the increase in repair costs outweighs the reduction in value.
Is it important to inform your insurer when the regular driver of the vehicle changes and, if so, why?
It’s important to do so because insurers view the regular driver of an insured car as the person who drives it the most in any given monthly period, and logically this is the person whose risk profile the cover is based on.
The logic is then that, if someone else drives your car more than you, the premium should be based on their profile.
Giving out misleading information about who the regular driver is, is one of the common reasons claims are rejected in case of an accident. It’s important to update the insurer whenever the regular driver of an insured car changes.
Does car insurance cover bodily harm in case of an accident?
No. In South Africa, it only covers the loss of or damage to the insured vehicle and aspects linked to it – like towing and repairs.
There is, however, the Road Accident Fund (RAF), which is a government-established insurance for road users that covers bodily harm in case of an accident. Since the RAF is funded by fuel levies, anyone who gets injured on South Africa’s roads, due to someone else’s fault, can claim from the RAF. According to the Taurus RAF Barometer, which monitors the RAF’s trends in paying out claims, “The current average payment term over the Q2 2021 (the latest report) was 281 days from the time of the claim being finalised to the date of the paymen”.
Just as much as road users are insured by the RAF for bodily harm, those who insure their cars for financial loss have options of cover. In a nutshell, options available to car insurance customers vary from insurer to insurer but there are non-negotiable or basic aspects of cover, which don’t include cover for bodily harm in case of an accident.
For example, most car insurance policies offer pothole damage cover, but car insurance policies can be modified to suit the policyholder. The options available to the customers are typically the following:
● “Total Loss” typically covers customers for the total loss of their vehicles only due to write-offs, theft or hijack, as well as limited third-party liability.
● “Third-Party Only” insurance cover typically provides liability cover for any damage the insured car may cause to the property of another person, meaning a third party.
● “Third-Party, Fire and Theft” cover, which provides cover against car theft, fire-related damages, and damages the driver may have caused to another person's vehicle during an accident.
● “Comprehensive” insurance cover provides the widest cover and provides insurance against theft and hijacking, damages due to an accident, fire or explosion and natural disasters.
How does an insurer decide what your car is worth when it gets stolen or written off?
It depends what value your vehicle is insured for. You typically have three options: retail value, market value and trade value. In the case of a write-off or theft, the value at the time of loss or damage is used to determine the insured value, not the original value when you took out the policy.
● Retail value is the average current selling price (on a dealer’s floor).
● Trade value is the average price that a motor dealer will pay you for the vehicle.
● Market value is the average between retail value and trade value.
As seen above, these are all averages based on transactions on similar models at dealerships across the country. Your vehicle could have a list of extras or could be in much better condition than the average vehicle of the same age. As a last step, vehicle extras (if they were specified and insured) are taken into account as well as the mileage and condition of the vehicle to determine a fair value for your specific vehicle.
It’s crucial for customers to understand the terms and conditions of their contracts before agreeing to them, in order to enjoy the best possible customer experience. Should you have any questions concerning your option, contact your insurer.
Christiaan Steyn is the head of MiWay Blink.
PERSONAL FINANCE