When it comes to insurance, there’s one point of confusion or frequently asked question that stands out – how it is that your vehicle, which depreciates in value over time, continues to be insured at the same, or even a higher, premium?
This is a common gripe for short-term insurance policyholders but one that can be easily explained, said Tyrone Lowther, head of Budget Insurance.
“Many people assume that the biggest risk to their vehicle is theft or a complete write-off in an accident and that the actual value of their vehicle is the major determinant of the insurance premium price.
“This is not the case. A relatively low percentage of accident-damaged vehicles are actually written off and in fact, an estimated 90% of vehicles involved in accidents are repaired and put back on the road.”
The costs associated with repairing and replacing vehicle parts play a far more significant role in determining premium price and that in fact, most of the insurance premium goes towards covering the vehicle against accidental damage, and paying for damages caused to other persons vehicles and property, he said.
Rectifying damage to modern vehicles can be a very costly affair and the cost of repairing a vehicle this year will be substantially more than the same time last year, even though that vehicle may have depreciated by as much as 10-15%.
“In days gone by, all that may have been required was a bit of panel beating – the case today is rather different.
“Electronic items like airbags can drive the cost up significantly. On some models, the cost of the windscreens is prohibitive, integrated headlight clusters look great but cost a fortune, and even bumpers can have a significant replacement cost, as today they often have sensors in them for park-distance control.
“Therefore, what may look like minor damage to the untrained eye can, and often does, cost tens of thousands of rands to repair,” said Lowther.
He added that many of the vehicles on the country’s roads are imported, meaning that spare replacement parts have to be imported too. The pandemic has caused the costs of these spare parts to increase significantly because of supply and demand and because of import difficulties as a result of lockdowns.
“The market value of your car may be lower, but because the premium is providing cover against damage more than anything else, it has to stay similar or increase to enable the insurance company to viably cover the risk.”
“We encourage customers to take the time to read through their insurance policy; including the policy schedules. If you are unsure about what anything on your policy means, talk to your insurer and make doubly sure that you understand. That way you can make more informed decisions when you face an insurance crisis.”