Car insurance firms smiling as claims drop during lockdown

12 February 2021 - 15:07 By wendy knowler
A marked reduction in car insurance claims has been attributed to lockdown restrictions and working from home. Stock photo.
A marked reduction in car insurance claims has been attributed to lockdown restrictions and working from home. Stock photo.
Image: Kozyrskyi

Most South African insurers gave their clients discounts on their car premiums during the first months of hard lockdown, but claims statistics show the industry is continuing to benefit from significantly reduced claims as work-from-home has become the new normal for many.

The industry’s motor claims ratio for January to September 2020 was an average 51%, dramatically lower than the 63% for the same period in 2019.

This is revealed by claims statistics submitted by the insurers to the Financial Services Conduct Authority (FSCA).

The claims ratio is the percentage of premium income which insurers pay out in claims.

From January to September 2020, insurers collected R30.44bn in premiums, and paid out R15.46bn, or about half (51%) of that in claims.

While total premiums paid in the hard lockdown months of the second quarter - April, May and June - were just R42m less than in the first quarter of 2020 (R10.11bn compared to R10.15bn), the claims ratio plummeted from 58% to 41%.

Insurers paid R5.89bn in claims in the first four months of 2020 and R4.12bn in claims in the second quarter.

That means the insurers received R42m less in premiums (Q2 vs Q1) but paid out a whopping R1.7bn less in claims in the months when the roads were the quietest.

Interestingly, by the third quarter - July, August September - total motor premium income increased to a sum even higher than the pre-lockdown first quarter - R10.17bn - while the claims ratio, at 54%, was 4% less than in Q1.

Claims versus premiums information for the last quarter of 2020 is not yet available, the FSCA told TimesLIVE.

Asked why current car insurance premiums do not appear to reflect the significant impact which the dramatic shift to working from home, which is predicted to continue, the SA Insurance Association (SAIA) said most of its motor insurance members had introduced or were busy formulating options that take into account the work-from-home status of many.

“In terms of the claims ratio, there has clearly been a marked reduction because of the Covid-19 pandemic lockdown restrictions, which also impacted travel, but it is too early to say whether this is a sustainable phenomenon,” the SAIA said.

“Not only was less mileage being done for much of 2020, but SA experienced several restrictions, including alcohol bans and curfews, which contributed to the reduction in the claims ratio.

“Should insurers come to the view that the claims ratio will remain at low levels for the foreseeable future, the nature of competition in the sector suggests premium reductions will flow through the system over the next year or so.”

Meanwhile, that much-reduced motor claims ratio is proving very beneficial for insurers’ balance sheets.

Yet when Magda Snyman of Boksburg needed a rental car for longer than the 30 days stipulated in her policy while her car was being repaired, due to a Covid-19 related delay in sourcing parts from overseas, she was given a hard no.

Snyman’s six-week old Hyundai Venue was extensively damaged in a four-car freeway smash in late November and has yet to be repaired, due to what Hyundai terms “global supply chain disruption caused by the Covid-19 pandemic”.

The premium Snyman pays for her Outsurance motor cover includes a month’s car rental, but when that expired just before new year and she asked for an extension because of the parts delay, the insurer refused to extend that, despite the circumstances.

After TimesLIVE’s consumer editor took up her case, the insurer agreed to pay for another month’s car rental, starting on Friday.

“While as a general rule we do not extend car hire due to the 30-day maximum limit per claim, we do make exceptions based on factors such as the expected time of arrival of the part and the reason for the delay,” Outsurance said.

“In this matter we have a clear indication Covid-19 is the reason for the delay and as such we should allow for an extension of the car hire.”

Tony van Niekerk, editor of insurance industry magazine Cover, said general premium adjustments as the industry’s pandemic response would not be made in the short term, but insurers should find ways of using their claims ratio gain to delight their policyholders in other ways.

“Extending car hire periods where warranted is an example of that,” he said.

“The big corporates, and not just insurers, are usually too rigid in their processes to do it.”

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