SA vehicle repair costs soar

But sadly, among them are so many bad drivers and they now face a bleak future as they have to dig deeper into their pockets now and again to repair the cars they damage in accidents, or to meet other related costs. The driving standards of South Africans are falling rapidly. The cost of vehicle repairs is rising almost twice as fast as the increase in the number of vehicles on the road. And the spiralling costs are now reflected in rising insurance premiums, short-term insurers have said. In 2005 the cost of vehicle repairs rose 10 percent to R7 billion, while the number of vehicles rose by 6,58 percent to 7 971 187, according to statistics from the Road Traffic Management Corporation showed. A senior employee at Mutual & Federal, one of South Africa’s major insurance companies, says the number of claims on motor vehicle insurance policies has climbed by 25 percent, reflecting an increase in the frequency of collisions from one in five vehicles to one in four. The statistics also show that there was an increase of 3,14 percent in fatal crashes in 2004 to 13 325 from 12 919 in 2003. According to the Retail Motor Industry, the average repair cost per vehicle was R15 000, but some repairs went up to R150 000. The industry body said even minor repairs were costly for some vehicle models. Experts say about 40 percent of cars are imported, and come with sophisticated fittings that are expensive to replace, with airbags costing up to R4 000 to replace. Short-term insurance sector sources say that only 30 percent of vehicles on the road are comprehensively insured. The value of the motor insurance business is estimated at up to R15 billion a year. Vehicles written off after accidents were estimated to be worth up to R9 billion in the past year. A commercial underwriter at Santam says the grim accident statistics are an unacceptable reality that is forcing short-term insurers to improve on their cost management. According to a Financial Services Board (FSB) report on short-term insurers for 2005, the percentage of insurance premiums paid out to claims rose from 59 percent to 63 percent. Mutual & Federal in its financial results recently lamented the poor driving standards in the country and said this had been a drag on its earnings. The company also blamed congestion on the roads for the high claim rate. It said insurers would have to raise their premiums soon because the cost of repairs had steepened on the back of increases in collisions involving imported cars. While repair costs have risen, premiums have remained relatively flat due to stiff competition among the insurers. Low cost base providers quoted minimum premiums of R200 to R300 a month, while the higher end sought R2 500 to R3 000 for luxury cars. A senior broker says some insurers are accepting high risk levels or undercutting rates to grow market share. Insurers could not continue to undercut premiums but had to be stricter in their underwriting. The broker says the alternative was for the companies to move away from the motor vehicle cover business or to cap premiums. The FSB statistics showed a healthy state of affairs in the short-term insurance business for the period to December 2005, when only two of the 19 companies reported had less than the statutory solvency rate of 25 percent. The broker says the waning underwriting cycle and the current weather conditions would lead to increased claims, and companies that undercut their rates would come under pressure. Willem Roos, the chief executive of OUTsurance, says the company has benefited from operating on a low cost base and established relationships with reputable car repair dealerships to secure competitive charges for its clients. Meanwhile, the rand fell for a second consecutive week amid concern recent power shortages in the country may hurt Africa’s biggest economy and its exports. Cape Town, the nation’s second largest city, has suffered blackouts over the last three weeks, causing some businesses to halt production. Manufacturing shrunk for a second month in February, a survey has revealled. The rand fell against all 16 major currencies tracked by Bloomberg on concern declining exports will rob the country of foreign exchange. “The electricity cuts aren’t conducive to sustained higher growth” and may hurt the rand, said Michael Keenan, market analyst at Econometrix Treasury Management in Johannesburg. Against the US dollar, the rand fell as much as 1,9 percent to R6,225 last week. The currency has declined almost 3 percent in the last three weeks. The Investec Purchasing Managers Index was below the 50 cut off between growth and contraction last month, Investec Asset Management said. South Africa’s gross domestic product slowed to an annualised 3,3 percent in the fourth quarter, compared with 4,2 percent in the previous three months, according to a government report.

March 2006
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