Business Tech Africa Spoke to Schalk Fischer, Insurance Vertical Sales Leader at TransUnion Africa about the findings of the newly released South Africa Insurance Trends Survey and the Key take-aways for the insurance industry:
“South Africa’s vehicle insurance landscape is in a state of flux, reflecting broader shifts in consumer behaviour, financial pressures, and technological advancements” says Schalk Fischer.
“TransUnion’s South Africa Insurance Trends Survey, compiled data from 1,000 consumers who have vehicle and homeowner’s insurance policies, revealed several key trends that vehicle insurers must address to meet the market’s evolving needs” he contends.
Disconnect Between Vehicle Ownership and Insurance
TransUnion’s data shows there is a disconnect between the number of vehicles on the road and the proportion of insured drivers. Despite the public’s awareness of the risks of driving uninsured, many consumers still do not purchase vehicle insurance.
This is likely due to the rising costs associated with vehicle ownership, including maintenance once the vehicle is out of service plan and high fuel prices, among other factors. While consumers appreciate the risks of driving uninsured, they may not consider the lasting effects that accidents and third-party liabilities can have on their financial well-being.
The Cost of Being Uninsured
“Many consumers are financially overstretched, says Fischer, “The study shows that 70% of consumers who applied for vehicle financing did so on the maximum residual terms of up to 72 months”.
For those consumers financing vehicles, choosing the best possible insurance product often takes a back seat as affordability becomes the primary concern. When consumers make vehicle purchases on their maximum affordability, they may choose the least expensive insurance option without considering exclusions or a high excess that could break their budget if an accident happened.
“The aspiration of vehicle ownership often overshadows the practical realities of long-term financial planning, which encompasses insurance coverage” remarks Schalk.
The study shows that 23% of those surveyed chose not to renew their insurance coverage. Additionally, 23% believed insurance was unnecessary after paying off their vehicle finance, a view that was particularly widespread among Gen X at 29%.
This indicates a need for insurers and others in the industry to educate consumers about the ongoing benefits of maintaining insurance coverage, even after major financial milestones like paying off a vehicle. Twenty-two percent of respondents said they could not afford insurance; this financial strain was evident in all age categories, particularly among Gen X (31%) and Baby Boomers (27%).
“This presents an opportunity for the auto industry, insurers, and financial institutions to explore collaborative solutions, such as bundling insurance with vehicle financing” contends Fischer. “This model, which has been successful in other countries, could offer much-needed relief to over-indebted consumers while mitigating the risks associated with driving underinsured, or worse, uninsured”.
Embracing Telematics and Technology
Telematics, using in-car tracking or smartphone apps to monitor driving habits, offers insurers the opportunity to reward good driving behaviour with lower premiums or variable discounts.
While these solutions may have installation costs or monthly fees, they can lead to significant savings. With South Africa’s consumers increasingly embracing technology-driven solutions, telematics bridges the gap between insurance costs and coverage. In the past six months, 64% of survey respondents were offered insurance policies featuring telematics, with a notable 57% opting in.
The evolution of telematics is leading to more personalised insurance options with coverage tailored to driving habits. This approach makes insurance more accessible and affordable for safe drivers, who also benefit from feedback to improve their driving”, Says Fischer.
Survey findings indicate that younger drivers are particularly inclined to adopt telematics-based policies, with 73% of Millennials (25–45 years old) and 55% of Gen X (46–55 years old) respondents opting for such coverage.
Insurers attract customers not just through competitive pricing but also by offering rewards like discounts and vouchers, enhancing customer engagement and loyalty.
Mitigating Against Over-Indebtedness
According to the survey, 41% of respondents shopped for new car insurance due to high premiums, with 55% ultimately switching providers because they had found better deals.
This trend points to the need for more flexible, innovative insurance products that cater to the financial realities of South African consumers. Insurers may need to consider a different approach to product design, offering more modular policies that allow consumers to tailor coverage to their specific needs.
This goes beyond selling an insurance policy. Rather, it comes down to understanding the consumer’s entire financial journey and offering solutions that protect their assets while remaining affordable. For example, during COVID-19, many companies developed offerings based on how often or how far you drive per month, allowing customers to activate or deactivate coverage as needed. Future policies might be offered for each ride-share trip, enabling users to activate and deactivate coverage for specific items while out and about.
The Future of Auto Insurance
Auto insurance in South Africa will be shaped by the industry’s ability to adapt to evolving consumer needs. The TransUnion survey highlights several opportunities for insurers to enhance their offerings, from incorporating telematics into more policies to bundling insurance with vehicle financing.
The key to success lies in collaboration between auto manufacturers, financial institutions, and insurers. Original Equipment Manufacturers (OEMs) could play a more active role in promoting insurance, such as offering cashback incentives to cover the first six months of insurance for new vehicle purchases. This would give consumers time to adjust to the financial realities of vehicle ownership while ensuring they remain insured.
Ultimately, the survey’s findings underscore the importance of innovation in the auto insurance sector. As South Africa grapples with economic challenges and rising debt levels, insurers must offer products that not only protect consumers but also provide value in an increasingly competitive market.
“By embracing new technologies like telematics and rethinking traditional insurance models, the industry can help consumers navigate the complexities of vehicle ownership while ensuring they are adequately protected on the road”, concludes Fischer.
