Insurance Costs Set to Rise

July 4 - The insurance industry is not immune to the increased cost of living in South Africa. Industry sources said this week that companies would be increasing their premiums this year by as much as 10-15% in response to rising prices and the weakening rand.

Past years have seen an average increase of 6-8% in insurance costs and this year's increase is expected to be the biggest seen in the industry in a long time.

The MD of Alexander Forbes Insurance, Gary Dombo, said: "Inflation rates have both a ripple and multiplier effect on insurance costs. Given this combination of local and global scenarios, it would be very unlikely if interest rate increases did not lead to higher insurance premiums."

The higher incidence of motor vehicle accidents is definitely a reason why insurance costs are on the rise, according to Vivian Pearson, the spokeswoman for the South African Insurance Association. She said that since motor related accidents were the major source of claims, it was logical that premiums would increase this year.

Christelle Fourie of Santam also reiterated the strong influence that motor vehicle claims have on the rising insurance costs. She said that the increase of cars on the road, the deteriorating conditions of infrastructure in the country and bad drivers, combined with the costs involved in mending or replacing new, technologically-advanced cars made it a necessity to up car premiums.

Not all insurance companies are rushing to increase their rates significantly. However, experts warn that they will need to face these rising costs in the end. "If fairly substantial increases are not implemented now, rates will only increase more dramatically later on, or the level of service will decline," said Dombo.