Driven by fluctuating oil prices and the rand/dollar exchange rate, South African fuel prices continue to rise – with the war in Ukraine and sanctions on Russian oil and gas exports contributing to the sad state of affairs.
As fuel gets more expensive, transport and logistics costs rise, with these increases passed on to hard-pressed consumers through the goods they buy and services they pay for.
So, what’s the impact of spiking fuel prices on insurance – and how can intermediaries help clients protect themselves against risk while getting the best bang for their beleaguered buck? Here are some points to ponder …
Discuss the options
There is often a misconception about motor insurance that it is an all-or-nothing scenario – that you can have either comprehensive cover, or nothing at all. But this is not true.
Considering that South Africans – and the world – have been living with Covid-19 for more than two years now, with various levels of lockdown affecting driving habits, there has already been market demand for alternative cover options to cater for clients who are on the road less.
Higher fuel prices can result in less disposable income, and this is where alternative insurance cover options come in handy: you may, for example, want to advise your client to consider a product that covers their car only when it’s being stored and not driven, or one that limits cover to third-party liability, fire and theft.
Hollard, for example, offers a range of motor insurance options, including comprehensive cover against many risks, either with uncapped mileage or with a cheaper limited-mileage option that caps mileage to 6 000km per 12-month period; long-term storage cover; limited cover; and third-party cover (offering protection against third-party liability only).
Even if your client only has third-party cover, at least they’ll be protected in the unlucky event that they crash into someone’s Ferrari!
Knowing the risk, your message to your customer should be: choose the cover option that suits your needs, and change this over time as needs or circumstances change.
React to defined risks
Cancelling their insurance cover may help a client save on monthly costs, but would they be able to carry the burden of their car being in a serious accident or stolen without the benefit of an insurance payout?
Advise them that they don’t want to make an already rocky financial situation even worse and help them understand what else they can do to keep their cover but reduce their premium – for example, by increasing their excess. It’s less risky to have a R10 000 excess than to have no cover at all and end up carless, and perhaps paying for someone else’s damage.
Looking at risk from a policyholder’s perspective means you can help them examine whether their policy includes optional cover or valued-added products such as car hire that you can remove to cut down premium costs.
Does the household in question have more than one vehicle? Discuss with your client the option of using only one car (comprehensively insured), and taking out much cheaper long-term storage cover for the car that is not in use.
Clients must remember that if their car is financed, their loan contract requires them to have motor cover. Without insurance, they’ll be in breach of contract and still be liable for the monthly car finance payments, even if the car is written off in an accident.
As stated further up, having a high excess may be better than having no cover at all. But is your client able to afford a sky-high excess – and what if the costs of repairs to their car are less than the excess and thus not covered?
In the above scenario, it’s your role as the broker to provide the appropriate advice.
Say, for example, they increase their motor excess from R3 000 to R10 000 and subsequently have an accident with damage amounting to R8 000. On the new excess, they will have no cover because the damage falls below the excess amount, whereas with their previous excess they would have been covered for R5 000 of the R8 000 damage and had to pay R3 000.
It’s about your expert advice
The bottom line? It’s all about helping the policyholder to achieve the right balance of cover that still meets their insurance needs, even if only partly, and their budget.
Intermediaries understand all the different insurance options and premiums available. You can provide your clients with a range of scenarios to suit their needs and pocket – before they cancel that cover.