When the demerit system does come into effect, the ramifications for consumers and industry will be far-reaching.
This is according to Vera Nagtegaal, executive head of Hippo.co.za, who said that while the proposed demerit system for SA could significantly reduce road fatalities by imposing punitive action on motorists, it was almost certainly cost motorists more.
“Although personal nominal income has risen gradually over the past three years for most South Africans, real income has not,” said Nagtegaal. “Inflation has risen at a rate that has outstripped annual personal income growth.”
“Left with less discretionary income, consumers have influenced the product offerings of the insurance sector, prompting them to broaden their products to include lower insurance premiums.”
This means that close to 65% of South African motorists are uninsured, simply because they cannot afford it, she said.
Nagtegaal said that the pinch felt by consumers has also proliferated into the insurance sector.
“The stagnant South African economy over the past 12-24 months has influenced the local insurance industry, putting pressure on what has become a highly competitive market.” The challenge with the current industry landscape is the considerable pressure felt by insurers aggressively competing on a premium basis.”
“This comes at a time when profit margins have fallen as insurers absorb additional costs to keep their customers,” she said.
As a result, Nagtegaal believes that despite its good intentions, the demerit system can also pose a significant threat to the insurance industry in a number of ways.
Chief among these will be added risk of drivers having their risky behaviour actively tracked, and the possibility of losing their licenses.
“The suspension of a motorist’s license is likely to increase their insurance premiums or excess, influenced by greater perceived risk on the insurer’s part,” she said.
This poses further applicable considerations including how an insured motorist can afford higher premiums or excess when their license gets suspended, and whether a motorist with the suspended license forfeit their insurance cover and thereby be precluded from obtaining vehicle insurance from any other service provider, she said.