Edward West
23 June 2008
Johannesburg — INSURANCE costs were expected to rise 10%-15% this year, above the 6%-8% annual increase over the past few years, because of worsening economic conditions and the effect of inflation, Alexander Forbes Insurance MD Gari Dombo said on Friday.
Rising interest rates, combined with the weakening rand in an oil-importing economy and food inflation, were putting SA among the least favourable global investment destinations in a suddenly cash-strapped and risk-averse global economy.
"Inflation rates have both a ripple and multiplier effect on insurance costs. Given this combination of local and global scenarios it would be very unlikely if interest rate increases did not lead to higher insurance premiums," said Dombo.
South African Insurance Association spokeswoman Vivian Pearson said while the association did not have accurate statistics, it seemed logical premiums should increase this year due to the worsening economy, and factors such as the rising incidence of motor-related accidents, which was the major source of claims.
Mutual & Federal MD Keith Kennedy said industry personal lines (private insurance taken out by or for an individual) and commercial premiums might rise about 15% this year though companies would try to keep premiums down. Rising prices were a global phenomenon, he said.
Santam's head of personal lines underwriting, Christelle Fourie, said there would be no blanket premium increases as "we assess each client on an individual basis".
She said motor vehicle insurance claims costs had risen significantly over a number of years because of the higher costs of repairs. The rising number of imported vehicles, the advanced technology used in new vehicles, and high inflation also contributed. Other contributory factors were the rise in the number of vehicles, deterioration of roads, and the poor driving of many new vehicle owners.
On non-motor insurance, Fourie said the stabilising of crime would counter the cost of rising inflation to some extent, and should result in lower premium increases on household-contents and all-risks policies. Building and contents insurance would be negatively affected by changes in weather patterns, which had brought a drastic increase in weather-related claims in the past two years.
Dombo said while some insurance companies were promising minimal increases, these were not sustainable over the long term.
"If fairly substantial increases are not implemented now, rates will only increase more dramatically later on, or the level of service will decline."
He said there was much talk about vehicle-repair inflation not applying to locally produced cars, and this should limit increases in the cost of vehicle insurance. "If you unpack it, the bulk of our locally 'produced' cars are in reality locally 'assembled' cars -- with parts produced abroad."
Most replacement parts were imported. Even if some were produced locally, steel and aluminium were subject to the same inflationary pressures. Other inputs in SA, had increased dramatically in the past 24 months.
Dombo said building and other fixed asset insurance would be affected by fuel inflation, which pushed up transport and construction costs. With power inflation to increase, the cost of insuring fixed assets would be affected.
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