Netstar
South African insurers have had to relook their motor insurance offerings as the lockdown radically altered policyholder driving behaviour. What is the lasting impact of the pandemic, and how does telematics feature in this environment?
On 23 March 2020, a masked Cyril Ramaphosa at the Union Buildings announced that South Africa was about to go into a nationwide state of lockdown. In three days, everyone barring essential workers would have to stay at home.
In the uncertain months to follow, the sound of traffic was rare, and when it was heard, it was within curfew hours as the government’s restrictions waned and waxed with the peaks and troughs of the waves of Covid-19.
Of all the disasters to strike South Africa, Covid is decidedly quantifiable. As it spread, so too did the volley of data sets – numbers, percentages and projections that speak of its chaos. And for an industry that relies heavily on statistics and probability, the motor vehicle insurance sector finds itself in a drastically different place.
“The pandemic turned traditional motor insurance in South Africa on its head,” says Wynand van Vuuren, a Client Experience Partner at King Price Insurance.
But to understand how the motor insurance landscape of South Africa changed and how it will look from now on, we must look at the status quo before policyholders went off the roads in March 2020.
The way things were
“Car insurance has always been a grudge purchase,” explains Van Vuuren, “but in South Africa, it isn’t just a nice-to-have but a necessity to protect yourself from a range of risks.” South African motorists know these risks well, but, regardless, whenever they strap in a seatbelt most of them aren’t insured for these risks.
According to the AA, there are around 12 million registered vehicles on our roads. Of these, only three out of every 10 vehicles are insured. “If you’re involved in an accident, you’ve got a 70% chance of the other party not being able to cover any of the damage,” Van Vuuren explains.
The standard motor insurance policies that we’ve come accustomed to in pre-Corona South Africa can be divided into four broad varieties.
Comprehensive car insurance, as the name suggests, covers a swath of risks that we share on South African roads. “It covers you for accident and hail damage, write-off, theft and hi-jacking, and any damage that you may cause to other cars, property or people in an accident,” says Van Vuuren.
Then there’s theft and write-off insurance. “This is a fairly new offering,” he elaborates. It covers you for the total loss of your car if it’s written-off, stolen or hijacked and not recovered. It also covers any damage incurred during an attempted theft or hijacking.
Third party, fire, and theft car insurance covers policyholders for the total loss of your car due to fire, theft, and hi-jacking. It also covers you for liability to other people and their property as the result of an accident.
Finally, there’s third party car insurance. This covers you for liability for accidental injury to other people or damage to their property. Given that an overwhelming majority of road-users aren’t insured, it’s very important.
These conventional, comprehensive, or third-party party premiums were calculated on various rating factors such as geographic location, type of vehicle and the age of the driver, says Frans Prinsloo, Head of Mobility at Lombard Insurance.
Of these insurance policies, some are essential and others useful, but all were considered standard, run-of-the-mill offerings across the board from South African insurers. But with South Africa’s strict lockdown policy, there was no more commuting to work, which irrevocably reshaped the vehicle insurance landscape.
Where the streets have no cars
“Covid-19 is an unprecedented event for the insurance sector,” says Prinsloo. “With lengthy lockdowns, many drivers were no longer on the road using their vehicles.”
Says Van Vuuren, “With car usage in South Africa down to 30% during the lockdown, clients simply didn’t want to pay full insurance premiums for assets that were standing idle for most of the time.”
“Many insurers are charging and rating based on usage and the distance you drive,” explains Justus Van Pletzen, Insurance Markets Consultant for Netstar, a subsidiary of Altron. “We saw a low usage in lockdown, up until recently.”
Wear and tear – the literal daily grind that a car endures negotiating potholes and the stuttering stop and start of city traffic – slowed along with the ticking over of odometers.
“There was a significant reduction in the number of motor insurance claims,” says Prinsloo.
“From a rating perspective, I don’t think we saw too many big increases from the insurers in usage and claims experience,” Van Pletzen says. But less tyres on the tar doesn’t necessarily mean less risk. The risks mutated, much like the microscopic airborne virus doing the rounds globally.
The criminal element
Initially, with cars out of sight, crime didn’t pay. “Vehicle theft was harder,” says Van Pletzen, noting that cars remained safe behind lock and key in their owners’ garages. “Vehicles were absent from parking lots and weren’t there for the taking,” he says.
And so, criminals adapted their modus operandi, graduating from breaking in and hot-wiring cars to the armed robbery of vehicles.
“The difference we saw was a change towards the criminal’s behaviour from a hijacking perspective,” Van Pletzen says. “Hijacking increased because it was the easier method to steal a vehicle.”
The fleets
Then there’s the many latent effects of the virus. The widespread rioting in KwaZulu-Natal and Gauteng in July 2021 caused an inconceivable R25 billion worth of damage is an example of the knock-on effects of Covid-19.
Although the looting had strong political motivations, the pressures and stresses from lockdown restrictions and job losses fuelled the collective discontent.
In terms of vehicles, cargo carriers suffered throughout these weeks from theft, vandalism, and delays.
“Heavy commercial vehicles (HCV) and goods in transit (GIT) have suffered large losses in recent times due to the pandemic, coupled with the 2021 looting of the KwaZulu Natal and Gauteng areas, which is unprecedented,” says Curtis Davey, Divisional Director of HCV and Commercial at Natsure.
Being part of the knock-on effects of the pandemic, these were incidents unforeseen and were difficult to make provision for in a fleet owner’s risk management plan, Davey says.
“This has forced fleet owners to re-evaluate a few areas within their operations and come up with the appropriate risk measures”, he continues. “One of the factors is the implementation of a fleet maintenance plan, the knowledge of routes travelled, and the monitoring of driver’s behaviour.”
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This is where telematics comes in. Telematics has huge benefits, says Van Pletzen; listing petrol savings, trip shorteners, HR benefits and cameras as a few of them. The latter showing if someone in a company vehicle stops and picks someone up, or helping with accident reconstruction. “It makes business so much more cost effective,” says Van Pletzen.
Individual drivers’ habits aside, telematics technology has already flagged general risks on our roads, making it not only a proactive tool but a pre-emptive one too. “We already have data available where we can give insurers and drivers an upfront indication of where the hijacking hotspots are and where the high accident areas are,” Van Pletzen says.
A safe passage is one of the benefits touted by telematics experts. “Another factor is the use of routes that are unknown to the driver,” Davey explains. “This generally happens where a driver deviates from a designated route due to being late for the delivery or simply because he wants to get the delivery done quicker. This is generally a recipe for disaster as the driver could either lose control of the vehicle or get lost in a remote area,” says Davey.
“Using telematics, we can proactively guide insurers and clients into a better geofencing environment – “don’t use these roads; be careful there; that traffic light will likely be faulty; slow down.” In the long run, this is the sort of information that will be valuable to all involved.
While telematics used to be used solely for vehicle tracking, it has evolved to become a data-as-a-service tool, which provides invaluable information to insurers and their clients.
Reaction time is vitally important in the event of an accident or looting, Davey says. “Making use of an assist programme can mean the difference between losing a full load and losing only a partial load, as they can recover the vehicle quicker, and, in doing so, reduce the chances of losing the entire cargo.”
“You can have a more intelligent geofencing management of both your drivers and your risks,” says Van Pletzen. That is where I see telematics going in the future.”
But these uses aren’t catching on as quickly as you would expect, Davey explains. “Although it may seem obvious, these services are in most instances overlooked or ignored by fleet managers to save money.
The theft or looting of cargo occurs mostly when an accident occurs or the vehicle breaks down in a remote area. “Both these instances are often due to a poorly maintained vehicle, which is a direct result of the financial strain placed on business as a result of the pandemic,” Davey says. “In some instances, these unprecedented events have even caused thriving businesses to close down.”
Virtually no business has been left untouched by the pandemic. According to data from Stats SA, within two months after lockdown was announced, nine in ten businesses reported a decrease in turnover and a third had already laid off staff. “The strain on finances invariably leads to fleet owners not maintaining the fleet as it should be leading to ill-maintained vehicles on our roads,” Davey says.
The pandemic and policies
There’s a new focus on usage-based insurance (UBI) solutions, with an increase in demand for bespoke insurance coverage in the wake of the pandemic.
“UBI devices are included in the newly-structured vehicle insurance products, which takes into account information such as mileage, position, driver behaviour, and common routes travelled,” says Prinsloo of Lombard. Some insurers approach this using outdated methods, where a customer must provide a picture of the mileage on WhatsApp, for example, Prinsloo explains. “It’s not very effective.”
Ultimately, the more data you have, the better you can manage risk, which affects rates in the long run.
These precautions will assist the fleet owner to manage his risks, which will inevitably have an impact on how the risk is determined by an insurer when rating the risk and applying a rate, Davey explains.
“It will ensure that the policy runs profitability and is sustainable in the long run,” Davey says. “While it is true that the many pay the few, a fleet owner must be proactive in managing their risk. They can’t simply rely on insurance as the only form of risk mitigation.”
With data to back up your driving, clients will start to end up paying according to their behaviour. “Telematics has a huge percentage play in rates and premiums. If you’re a good driver and you drive accordingly, your insurance will obviously be a lot cheaper than the premiums of careless drivers on the road,” says Justus van Pletzen. “It just makes sense.”
But what if someone refuses to use it? “Then he’s going to pay the price,” Van Pletzen replies. “Then his premium will increase? The possibility is that the client will look for cheaper insurance and the risk will then move to another insurer. So, the ones that are doing it right in the long run will reap the benefits of it.”
Pay for what you drive
Lockdown has made it clear that there is no space for a one-size-fits-all approach to motor vehicle insurance. “And while driving patterns are on the up again, the way consumers want to be insured is changing to a point where they want to be insured for their own specific risks, says Van Vuuren.
He explains that the insurance industry has responded with two different approaches. One is to reward drivers for their driving behaviour (pay how you drive) with the promise of reduced premiums.
The second, which is gathering momentum in the industry, is usage-based insurance (pay as you drive), which allows consumers to pay premiums based on how many kilometres they drive in a month.
Referring to how these concepts are taking off in America, Van Vuuren says that companies such as San Francisco-based Metromile offer pay-per-mile insurance, while Slice is growing market share in the US and Canada for a range of pay-as-you-use short term insurance products.
When it comes to behaviour enforcement in the telematics sphere of insurance, it’s all carrot and no stick.
The onus on being more responsible behind a steering wheel is getting the nod across the industry. “Driver incentives also play a vital role in getting the right driving behaviour from a fleet owner’s driver,” notes Davey.
“Some insurers have enhanced their offerings by providing mileage-based or pay-as-you-drive cover, where premiums are discounted based on the kilometres travelled, says Prinsloo.
Telematics could radically change how policies are structured by rewarding drivers for not using their vehicle at all or payment holidays for those not using their vehicles, says Prinsloo “With the use of telematics, pay-as-you go-insurance could become the new norm for drivers. Usage-based policies could provide temporary cover that insurers by the kilometres travelled,” he explains. “Extending cover to borrowed vehicles for work purposes is another potential option,” adds Prinsloo.
A telematic future, post-pandemic
With the ebbing of restrictions, and a slightly more predictable environment, the impact of telematics on insurance and drivers will be statistically clearer than during the pandemic. Seeing that the uncertainty of oscillating severity of lockdowns make it difficult to show the state of telematics in everyday conditions.
“We will most certainly see an increased use of telematics,” says Van Pletzen. “Things are almost back to normal, so it’s easy for insurers to compare and see where more people are on the roads. This information will be very useful in implementing and rolling out telematics across insurance offerings,” he says.
Now is the time for insurers to push the concept of telematics, he encourages. “We see an increase in interest but many insurers continue to be slow on the uptake,” Van Pletzen adds.
As the pandemic has shown, digital solutions – remote working and online alternatives to shopping, socialising and entertainment – were the response to an in-situ crisis. There’s no reason why motor vehicle insurance can’t go digital too.