Accidents contribute most to the cost of insurance. Between 50% and 55% of insurance claims is for repairs after accidents. Theft and hijackings constitute only approximately 20% of insurance claims - which also include a high number of fraudulent claims.
"Adhere to the basic rules of the road, and prevent accidents. People have to take responsibility for their behaviour on the roads. The public pays for the high incidence of road accidents with high insurance premiums. Inflation also impacts on the cost of insurance," says BrokerNet General Manger, Sollie Stols.
"A large percentage of cars on South African roads are imported. These cars are initially relatively cost-effective compared to locally manufactured models, but the repair costs are markedly higher. The cost of panel-beating increased between 15% and 25% this year. This, coupled with high inflation and five interest rate hikes last year, hit the consumer pretty hard. This results in insurers losing their best customers because people are shopping around for better options."
Portfolio management is also the management of risks. External factors have a huge impact. By identifying them in time, potential risk could be managed. However, some risks cannot be calculated ahead of time. The after effects of the events of 11 September 2001 are still affecting the insurance industry. It is therefore becoming increasingly important to insurers and brokers to change the way they operate. Tariffs will have to be less generic and clients` risk profile should be determined individually.
"You cannot have an umbrella approach any longer. Traditionally, when it was time to increase insurance premiums, a general increase was introduced across the board. This approach is no longer applicable. Risk will have to be determined individually in order to stop people cross-subsidising each other. Age, area and other factors, as well as the client`s claims history determine risk. Crime has moved from Johannesburg to Pretoria and is now surfacing in the rural areas. Age groups also show specific trends. All these elements are taken into account when we determine an insurance premium," Stols said. "However, the public has a responsibility as well. Premiums are negatively affected by fraudulent claims, which, according to market research, are as high as 35% of all claims."
The key to the problem is sufficient management information. BrokerNet, a division of the Dex Group, relies heavily on management information. "This is where our success lies, " says Stols. "We process and evaluate the information and use it then to implement precautionary measures. The sophisticated system identifies high-risk claimants and low risk claimants, and enable us to eliminate cross-subsidies. This way we can add value to the broker and this benefits the insurer as well as the client. In the end, both can manage their affairs profitably."
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