Is linking your car insurance premium to mileage becoming the new normal?
With Naked car insurance policyholders boasting on social media about their up to 90% premium savings during lockdown, and showing up their competitors who’ve been offering relatively small premium discounts, it was inevitable that the “drive less, pay less” car insurance model would be copied.
On Tuesday, King Price Insurance launched its pay-as-you-drive fully comprehensive car insurance product called Chilli.
“We don’t believe that many South Africans will be going back to their ‘normal’ commute any time soon, and as people are driving less, we don’t think it makes sense that they’re paying the same for their car insurance,” said King Price CEO Gideon Galloway.
“But nor do we think that simply discounting premiums is a sustainable solution.”
Chilli monthly premiums start at R299 - if you drive less than 100km a month and your car has a retail value of not more than R500,000 - covering accidental damage, theft and hijacking, as well as third-party liability.
“Approved telematics tracking devices (at an extra cost of R49 a month), feed Chilli clients’ mileage straight into our systems,” Galloway said, quickly adding that there’s no “big brother” element.
“We just want to know how many kilometres you’re driving,” he said. “It’s not about monitoring the way you drive.”
“I’m a very aggressive driver,” he revealed to journalists attending the online media conference. “Harsh braking is not a bad thing.”
Those who don’t like the idea of a tracking device can take a photo of their odometer and upload it on the King Price app.
You don’t even have to remember to "switch on" your cover before driving somewhere, the company said - in an obvious dig at Naked’s CoverPause system, which allows policyholders to pause the accident cover on the days they are not driving, thereby paying as little as 10% of their normal comprehensive premium.
Naked co-founder Ernest North told TimesLIVE that despite car sales being close to zero during lockdown, Naked Insurance sales have been at record levels.
“In both April and May we had our highest sign-up of new monthly users,” he said.
Discovery Insure has a form of mileage-linked premium system: it's offering its clients 25% cash back on car premiums every month for those who drive fewer than 250km a month, and 15% off for those who travel between 250km and 499km a month during the various lockdown levels or until December 2020 - “whichever comes last”.
That’s provided they have “a working telematics device” in their cars.
“There will always be a need for comprehensive insurance,” said Galloway. “Recent stats also show that car theft incidents – having dropped dramatically when lockdown was first implemented – are back up to 60% of pre-lockdown figures.”
But with so many South Africans being forced to work from home for the foreseeable future, and driving far less as a result, many are questioning why their premiums haven’t been dropped by an amount that mirrors their radically reduced driving time.
Jay Naidoo tweeted: “First For Women, so why didn’t you lower premiums during lockdown? Surely the risk decreased with less driving and schools closed, so less traffic? My premiums go up every year by about R100 because you say car parts cost more, so why didn’t it decrease these past two months?”
Robyn Farrell, CEO of Telesure Investment Holdings Short-Term Insurance - which includes First for Women, Auto & General, Budget Insurance and Dialdirect - said: “Over the past two months, we have provided premium relief and discounts of up to 20% to those who need it.
“We are also working on a number of products to assist our customers who will be working from home and travelling less, now and in the future.”
Many of those who requested premium reductions were told they needed to sacrifice key cover, such as accident cover, to get it.
Relief offered included no excess payments in the event of a claim.
In some cases, policy holders had to “opt in” in some way, to benefit from a premium reduction.
Old Mutual iWyze customers had to complete a “pledge” on the company’s wyzeHUB to “be eligible to have your next three premiums discounted by 7.5%”.
How much to discount premiums, how to do it and for how long are the questions all motor insurers are currently grappling with.
The country’s biggest short-term insurer, Santam, has told its policyholders: “The 20% refund on April premiums was as a once-off, but we’re exploring ways to bring further relief to our clients.”
At the start of lockdown in March, Outsurance said it didn’t see the need for a blanket premium drop, but weeks later announced an across-the-board 15% reduction in its existing car insurance policies for the month of May.
Now Outsurance is offering a 10% discount on vehicle insurance premiums in June 2020.
“It’s the fair thing to do,” says CEO Danie Matthee. “After all, with fewer clients on the road, we do see fewer accident related claims.
“More importantly, we want to do all we can to ease the general financial strain our clients have to face during this time.”
But this time it’s not an automatic reduction: clients have to opt in via Outsurance’s digital platforms, declaring that their monthly mileage has decreased as a direct result of the lockdown.
MiWay initially announced that its clients would enjoy a 10% reduction in their April premiums, then upped that to 17% and will on Monday June 8 announce premium discounts of “up to 20%” for those who work from home and drive less often.
Standard Bank Insurance is giving its clients 25% of premium back in cash during lockdown.
Whatever an insurer’s business model, they’re sure to be fielding many queries from their clients about radically reduced mileage.