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car-insurance-claims-covid

Lockdown has positive impact on car insurance claims

The impact of the pandemic has influenced many lines of insurance, but perhaps one of the most direct consequences of lockdown in South Africa, and also globally, is evident in the car insurance space.

As the pandemic began to spread in March and the lockdown followed suit, the widespread turn to remote work meant that vehicles were left parked for potentially weeks, if not months. As a result, many insurers began to offer discounts on their customers’ care insurance premiums. Now, even though drivers have returned to the roads, the pandemic’s impacts on vehicle usage and insurance cover will likely continue into the future.

One of the areas that shows a positive trend is the decrease in car insurance claims. The industry’s motor claims ratio for January to September 2020  averaged 51%, dramatically lower than the 63% for the same period in 2019, according to the claims statistics submitted by the insurers to the Financial Services Conduct Authority (FSCA).

Timelive reports that from January to September 2020, insurers collected R30.44bn in premiums, and paid out R15.46bn, or about half (51%) of that in claims:

  • While total premiums paid in the hard lockdown months of the second quarter – April, May and June – were just R42m less than in the first quarter of 2020 (R10.11bn compared to R10.15bn), the claims ratio plummeted from 58% to 41%. (The claims ratio is the percentage of premium income which insurers pay out in claims)
  • Insurers paid R5.89bn in claims in the first four months of 2020 and R4.12bn in claims in the second quarter. That means the insurers received R42m less in premiums (Q2 vs Q1) but paid out a whopping R1.7bn less in claims in the months when the roads were the quietest.
  • Interestingly, by the third quarter – July, August September – total motor premium income increased to a sum even higher than the pre-lockdown first quarter – R10.17bn – while the claims ratio, at 54%, was 4% less than in Q1.

SA Insurance Association (SAIA) told Timeslive that in terms of the claims ratio, there has clearly been a marked reduction because of the Covid-19 pandemic lockdown restrictions, which also impacted travel, but it is too early to say whether this is a sustainable phenomenon. ““Not only was less mileage being done for much of 2020, but SA experienced several restrictions, including alcohol bans and curfews, which contributed to the reduction in the claims ratio,” SAIA commented.

Click here to read the TImeslive article that also highlights a case study to illustrate the impact of Covid on car insurance terms and conditions.

Click here to listen to Wendy Knowler interviewed on 702’s Money Talk Show about the car insurance claims ratios.

The question that Wendy Knowler rightfully asks is, will there be a general adjustment of car insurance premiums as a result of the decrease in claims ratio? Insurers also need to be commended for providing clients with premium holidays during the worst part of the pandemic lockdown.

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