Premium increases – the devil is in the detail

Caron Whitfield, Head of People Solutions, Olea South Africa unpacks the rationale behind premium increases and why South Africa’s volatility and vulnerability impacts increases.

Olea’s personal insurance gives you comprehensive cover for your assets. Premium amounts have to be adjusted each year to take into account changes or increases in risk and inflation which is projected for the next year. These degree of risk changes which is why premiums can sometimes be higher than inflation.

Annual policy review

60 days prior to the renewal date, we discuss the risk, claims history and other relevant factors with the Insurer and agree on premiums, excesses and any applicable warranties and terms.

  • An automatic inflationary increase is applied to Building, Contents and general All Risks cover
  • Vehicle values are reviewed and updated according to the TransUnion guide which gives retail values on all second hand and brand-new vehicles

What is the TransUnion guide?

Determining fair retail prices requires expert analysis of objective and subjective factors and even then, they can be subject to market fluidity. The TransUnion guide provides a reliable industry standard for vehicle valuations, by collating and analysing data from over 60,000 vehicles from nationwide manufacturers and dealers per month. Industry experts continually analyse and update this data traffic to ensure valuations are relevant when going to print and stay that way in real time on electronic channels.

  • 30 days prior to renewal we engage with our clients and run through the proposed renewal terms
  • Any changes are made and the updated policy is renewed into the next period

Reasons for premium increase

  • The cost of repair increases is a major factor in vehicle insurance
  • The cost of repair of a vehicle is dependent upon the cost of parts, the exchange rate for parts which need to be imported and the increased cost of labour. Bearing in mind that over 90% of claims are for vehicle damage after an accident, this has a significant effect on the premium.

Claims’ risk

A number of factors are taken into consideration when determining a claims’ risk. These include where the car is kept overnight, your age and how long you have driven. External factors include motor car theft patterns and the risk of natural disasters and weather patterns.

Decreased value of your car

The value of your car decreases every year. Theoretically you would be paying less for your insurance every year. However, the percentage of motor vehicle claims for cars being stolen or written off is a small portion of all the claims, so devaluation does not play a major role in the amount of your premium change annually.

The broker and insurance industry believes that the following factors will impact the industry immensely.

Increase in natural disasters

The increased frequency and severity of catastrophe loss events in South Africa has been a critical factor in determining the rise of premiums. There have been reports of reinsures asking for a 30% increase in catastrophe reinsurance premiums during the annual renewal.

Insurance premiums are climbing worldwide on the back of rising inflation and interest rate hikes. But reinsurance rates in South Africa are outstripping the global trend - in some cases tripling - as insurers grapple with an unprecedented claims load, six industry executives told Reuters.

That's largely down to heavy payouts for business interruption claims in the first year of the
pandemic, damage and looting during 2021 riots and heavy flooding last year.

"From a reinsurance perspective, these are the three biggest catastrophe events that this market has ever had in terms of insured losses," said Andy Tennick, managing director of Africa Reinsurance Corporation's South African subsidiary.

Political riots

Politically fuelled riots and looting in 2021 caused some $3.2 billion in damage by one estimate. And insurers worry that one of the world's highest unemployment rates - over 43% of 15 to 34-year-olds are out of work - is making such unrest a systematic risk.

Grid failure

Experts warn the power grid - once the cornerstone of Africa's most advanced economy - is now at risk of collapse as Eskom's ageing fleet coal-fired power plants fails frequently and is unable to meet rising demand for electricity.

Grid failure would plunge South Africa into a nationwide blackout that could last weeks.
Insurance companies and their reinsurer underwriters worry the dire and wide-ranging consequences for business operations and basic services of such an event would set off a deluge of claims, according to Africa Re's Managing Director Andy Tennick.

At Olea we are constantly keeping up to date with the factors affecting the insurance industry and premium increases and will guide you through the unique circumstances facing the South African insurance industry.

Please contact us on +27 11 799 6400 or for any assistance or advice you might need.