Finance: Insurers Struggle As Motor Costs Surge
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Costs of manufacturer-approved parts and labour as well as costly delays caused by the growing need for imported parts, which, in turn, leads to extended car hire periods, are some of the main reasons why the cost of motor repairs have significantly increased.
According to Andrew Lilley, a director at CIB Insurance, even with the Rand strengthening by roughly 20% since January, the rise in cost of manufacturer-approved parts has continued during 2009.
Lilley says in some cases, the cost of manufacturer-approved parts have risen 40% over the last 12 months. “Unless we look at other ways of containing these costs, these increases will filter through to policyholders in the form of higher premiums.”
According to a 2008 Finscope survey, already only 30% of South Africans have motor vehicle insurance.
“This figure could get even worse if premiums had to rise significantly. With consumers already under pressure from the recession, a rise in insurance premiums will no doubt lead to cancellation of insurance cover. This would make South Africa’s roads even more dangerous as few people are able to afford repairs to damaged vehicles without insurance.”
According to Lilley, one of the measures taken by insurers to counter these rising costs is sourcing alternative components when repairing damaged motor vehicles.
He says that the fact that alternative parts are often referred to as “pirate parts” automatically conjures up a negative connotation and as a result, some customers have a negative perception of this practice. What many don’t know is that in most cases, these “alternatives parts” are often identical to the so called manufacturer-approved components.
“Manufacturer approved components are not always made by the vehicle manufacturers themselves, but are outsourced to specialist component manufacturers. These specialist component manufacturers also produce the alternative parts. These are often identical to the original factory components in every way, save for the branding. However, the cost can be as much as 35% cheaper for an alternative part than the branded component.
He points out that the terms and conditions of vehicle insurance contracts usually state that that when a claim arises as a result of damage to a vehicle, the insurer will place the customer back in the same position as he was prior to the damage being incurred.
“This means that we ensure that no customer is financially prejudiced by the use of alternative components. For example, if there is a warranty in place on a vehicle that could be adversely affected by the use of alternative parts, they will not be used. In addition, safety of the insured is always a priority and it will not be compromised in any way”, says Lilley
This approach has been backed up by the Ombudsman for Short-Term Insurance, who recently said that there was no reason why components made by outside component manufacturers should not be used where this can result in cost savings, provided that issues of safety or reliability are not compromised.
Lilley says that while these alternative components are usually new, there are some instances when second hand parts will be used. “If there is damage to a vehicle that is for example 20 years old, we may decide to repair the vehicle using second hand components. The underlying purpose of insurance is one of indemnification, so the use of a new part to replace an old one may not always apply.
“We encourage consumers to engage in discussions on the parts being used for repairs, and the reasons for this. This is where having a good broker could come in handy, as he will be able to ensure that you are not being prejudiced in any way when it comes to the repair of your vehicle.”
Business News Sector Tags: Finance|