'Digitisation' could lead to a decrease in Motor insurance premiums

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Glen Mollink, CEO of Innovation Group SA, says that in the UK the process of having driving records migrated online is anticipated to lead to a significant drop in premiums. This is as a result of insurers' ability to gain direct access to drivers' details, allowing them to price policies according to an individual's driving history and their risk behaviour.

"Insurers currently charge higher premiums in order to mitigate the lack of information they receive from motorists, as mistakes or intentional omissions can make their driving history seem rosier than it actually is.

How digitisation works

One highly successful model of digitisation being studied by South African role-players for its appropriateness in the South African context is that operated by British research company Thatcham, though Mollink emphasises that company is not currently involved in any initiative in this country.

Mollink explains how digitisation works: "Following an accident/incident a digital photo is taken of the vehicle damage and posted online in 3D along with all the policy details of the insured (having been captured when the policy was taken on). This enables repairers to submit their quotes immediately and eliminates the need for loss adjustment (the process of sending out an assessor). The transparency of the system minimizes fraud. This system is active in the US, France and Germany, where an additional feature of their local industries has been considerable consolidation among repairers resulting in chains of repair workshops, a practice which has yet to occur in South Africa. This has resulted in increased volumes and reduced cost of repairs in those territories overseas."

Viviene Pearson, the South African Insurance Association (SAIA) General Manager: Insurance Risks, says SAIA is currently speaking to Thatcham on another key initiative in the motor insurance space, that of a group rating system, which could also assist in our quest for more affordable motor insurance in South Africa. "Thatcham has a range of products, but at this time we are not talking to them about digitisation," she says.

No legislation

Currently South Africa is far off from implementing a system of digitisation as there is no legislation or accepted method of data sharing amongst insurers, nor do we have efficient national chains of repair shops. The result is that motorists are compelled to go to dealer networks, which are usually more expensive, explains Mollink.

"However, repair volume is in fact 'owned' by the insurers and it is within their power to address the costs in the supply chain by encouraging consolidation and the scaling up of volume. Greater volume means reduced average cost, and ultimately the potential to improve access by arriving at a motor insurance average premium which is affordable to the mass market. In this manner, and by providing more relevant product to the uninsured market, the industry can tap into the eight million vehicles (almost two out of every three) currently uninsured on our roads," adds Mollink.

Making such an online system feasible within the medium term is the fact that cross-selling and internet sales through either insurers' own online platform or third-party price comparison websites is already becoming the norm for the industry. Also accelerating this process is that Africa is one of the most promising insurance markets in the world, one in which foreign-owned insurers (which are familiar with digitisation in their home markets) have grown their participation in the South African and African markets largely by acquiring stakes in existing domestic market players.

"Despite various challenges faced by insurers, the market remains optimistic about the growth and industry development trend, empowered by the fast digitisation of South Africa society," says Mollink.