Prevention is better than cure
In the long term, continuing to manage vehicle risk in SA from the perspective of fixing damage after it has happened threatens to make cover either unaffordable for individuals or businesses, or commercially unviable for insurers.
Traditionally, motor insurance has been driven by events, namely accidents and thefts. These have defined risk perceptions, established insurance models and determined the cost of vehicle insurance. In future, however, it seems that the external, environmental and behavioural factors influencing risk will define risk perceptions and set insurance pricing.
"Shifting the conceptualisation and management of risk from reactive risk-based assessment to a more proactive focus on the broader environment contributing to risk may also save South Africa's loss-making vehicle insurance industry," says Volker Von Widdern, managing director of Marsh Africa, Marsh Risk Consulting.
How the external, environmental and behavioural factors of risk are managed will likely become the leading determinant of risk and what it costs to manage risk in future.
Insurance can no longer be seen as the primary risk mitigation tool for either individual vehicle owners or fleet vehicle operators. Instead, beyond insurance - or the clever management of vehicle fleets using electronic vehicle mapping, or telematics - there is a need for a broader form of risk awareness encompassing an assessment of behaviour, training and the operating environment. "In future we'll be taking a risk-weighted usage view of the operation of vehicle assets," says Von Widdern.
Individuals and businesses that own and operate vehicles in SA, along with the companies that ensure them, face a unique combination of risks.
Since approximately two-thirds of vehicles in SA are not insured, the country's premium pool is inadequate relative to the total number of vehicles on SA's roads. This means that risk costs significantly more for vehicle operators in SA.
Furthermore, poor provision of information by individuals or fleet managers often prevents thorough risk profiling and analysis. The result is that SA underwriters face narrow margins and significant underwriting losses from both individual and business clients.
A legacy of SA's development and demographics is a high number of barely roadworthy or illegal vehicles on SA roads. This is made worse by periods of massive concentrations of traffic on limited road infrastructure, for example, during the Easter rush to Durban or Polokwane, or December holiday traffic congestion; high levels of overloading of both passenger and freight vehicles; poor or deteriorating road networks and high concentrations of road users on all classes of SA roads. "The vanilla picture of driving conditions presented by most individuals or fleet managers when calculating risks and premiums simply doesn't apply in South Africa," says Von Widdern.
The result is that SA suffers in excess of 10,000 fatalities per annum, more than 10 times the rate of other countries with similar vehicle populations.
Given the costs of vehicle risk in SA, telematics has been variously deployed to record, amongst other things, location, acceleration, braking, cornering, engine RPM and even the number of occupants in the driver's cabin. Often with cameras recording in the cabin and outside, the information gleaned helps vehicle risk managers deter theft, identify poor driving or overloading, or assist lost drivers. The concomitant effect is a reduction in fuel consumption, wear and tear, accidents and vehicle loss by improving driver behaviour.
Today, telematics combined with live traffic reporting and diagnostics can assist fleet owners to minimise the risk of multiple vehicle damage or loss in peak traffic or poor driving conditions.
Nevertheless, not everyone in SA is playing by the same rules. A minority of private vehicle and fleet owners apply comprehensive risk management procedures including the use of technology to minimise risk. The majority, however, do not. As such, risk management is not restricted to how owners manage their own vehicles and fleets. Other vehicles' behaviour, condition or insurance status, or other environmental or external factors, add significantly to the risk that SA drivers face.
"Despite the strong orientation to enhance the analytical element of vehicle risk management, the reality is that more attention should be paid to the behavioural, training and environmental circumstances in which South African vehicles operate," says Von Widdern.
For example, companies have a variety of drivers, with different skill levels, driving at different times of day or night on different road conditions in different parts of the country. This is all again influenced by factors such as the driver's motivation, performance targets, health and logistics management. As such it is advisable that fleet managers look to achieve behavioural targets amongst their drivers, rather than exclusively focusing on monitoring or simply getting the job done.
"Understanding how and why people drive overloaded vehicles is a key question. Why drivers don't ring up the company ethics line when asked to do something they know their vehicle can't handle; why drivers are incentivised to break the rules is critical in managing risk holistically as this adds the missing behavioural perspective to the problem," says Von Widdern.
In this way Marsh is able to analyse an individual or transport business' operating model from a quantitative and qualitative perspective and then advise on the management, training or technology required to reduce the total cost of risk. There is a strong correlation between accelerated depreciation, from excessive wear and tear or increased maintenance, and higher indicators of behavioural risk or poor training, for example. "All risk indicators need to be linked, including the maintenance record, driver behaviour, vehicle telematics, delivery targets, business performance outcomes, training required and external operating environment, if the overall risk outcome is to be improved," explains Von Widdern.
If risks that contribute to vehicle damage in South Africa, such as behaviour, training and operating environment, are managed holistically, the total cost of risk that businesses and individuals carry could be reduced, and cover could be made affordable.
