Insurance as the definition goes, is a means of protection from financial loss in the event of uncertain loss, damage or injury. This is done in exchange for a monthly fee, for which a party agrees to compensate another party in the event of such a financial loss. Insurance, in essence, is a form of risk management to protect someone against such happenings.
Related: What is the cost of insurance for electric cars in South Africa?
Popular kinds of insurance include house and home contents and car insurance, which is what we're talking about today. Cars are expensive and you need to protect your investment and protect yourself in an uncertain event, which is where insurance is vital. However, insurance can be costly, so surely there are some ways to save a few bucks while still covering yourself. With this in mind, how can one obtain cheaper insurance? We spoke to a few popular insurance companies in South Africa about this.
While you're at it, if you're searching for your next car to ease up those insurance costs, start by searching AutoTrader and sell your current car too.
How are insurance costs determined in South Africa?
Local insurers assess the cost of your insurance through a Risk Profile. Insurance companies don't know who you are, how and what you drive, so you have to paint a picture with numbers for them. Simply put, a risk profile is a measure of expected losses, like for example, what it will cost to replace your vehicle in the event of a total loss. This measure is for a defined period and is based on different types of historical data such like what total losses have been encountered, the number of losses, what's the average loss size, and payout patterns.
What factors are used to calculate a risk profile though?
Driver Age - The general assumption is that the younger you are, the less time you've had your driver's license, and you don't have much experience. Therefore, you are deemed more of a risk in the eyes of an insurance company. Younger drivers are assumed to be more reckless and excitable compared to older, more experienced drivers who have had their license for longer and tend to be calmer and more cautious.
Vehicle Make and Model - This factor is two-fold. For one, in the event of an accident, what would the replacement cost for the entire car or the parts needed to repair the vehicle if it is repairable? Cost-effective common commuter cars where parts are readily available off the shelf are generally cheaper to insure as it is more affordable for the insurance company to source the parts to repair the vehicle. The second factor is if the vehicle is a theft risk. If your vehicle is a common target for thieves, your monthly premiums can be higher than less hot cars. Does the colour matter though?
Amount of claims - If you have a history where you tend to claim a lot and often from your insurance from accidents, you're deemed as a higher risk and can raise your monthly premiums.
Where the vehicle is often parked - The area where your car is parked for most of its time can affect your monthly premium amount. If the area is deemed unsafe, your monthly premiums can be raised.
What the vehicle is used for - Vehicles used for private transport that travel to and from work or are incremental to the work have their premiums affected by where and how far the owner drives. In the case of eHailing, some insurance companies don't even insure vehicles used for eHailing.
How can you reduce your insurance costs?
The key factor here is how you can put your risk profile in a favourable position.
Compare Insurances - Go to different insurance companies to obtain quotes and see what they're willing to cover you for. You can also use aggregator websites like Hippo.co.za to get a list of insurance companies with rough quotations and see what they can cover you for.
Credit score - Interestingly, your credit score affects your premiums. If you're likely to default on payments, your monthly premiums will be higher versus someone who pays on time and judiciously.
What coverage do you need? - Do you necessarily need comprehensive insurance or just third-party insurance? Comprehensive insurance will naturally be more expensive than third-party insurance as it covers less. Also, with comprehensive insurance, check what you're covered for as well. For example, if you have a spare car to use, you don't need to hire a car. If your vehicle is paid off, then a credit shortfall isn't necessary. Excluding those items can reduce your insurance premium costs.
Speak to a broker - Insurance brokers generally can get you insurance at a discounted price.
Adjusting your excess - Premiums and excess work hand in hand. The lower your excess, the higher your premiums. The higher your excess, the lower your premiums. In the event of an accident, be ready to handle the excess amount though to cover repairs and the like.
Vehicle usage - If the vehicle is parked in a safe area like an access-controlled area, for example, but the vehicle isn't used often, mention this to your insurance company, as less usage generally equates to lower monthly premiums. Some insurance companies will even allow you to temporarily pause accident cover if the vehicle is parked off to reduce your monthly premiums. Less kilometres mean less risk.
Telemetry devices - Some insurance companies can install a telemetry sensor in your vehicle to monitor your driving habits like acceleration, braking, cornering and phone usage. Careful drivers are deemed less of a risk, whereas drivers who push the limit are considered more of a risk. Some insurance companies even have rewards programs for careful driving.
No claims bonuses - If you build up no claims over some time, your monthly insurance premiums amount can decrease.
What doesn't reduce your monthly premiums?
After speaking to three popular insurance companies in South Africa, this is what we could glean:
Adding an experienced driver - Adding another experienced driver doesn't reduce the premium if you're the primary driver. Some insurance companies have an open driver policy so anyone can drive their car.
Adding more security devices - While adding a tracking device is compulsory with some insurances and certain cars, adding more security devices doesn't lower the monthly premium amount.
Advanced driving courses - According to the insurance companies we spoke to, attending an advanced driving course and presenting the certificate to the insurance company won't lower your premiums with them; however, we still advise doing these. While in this vein, it won't reduce your monthly premiums, it will help in other areas like accident avoidance and being less of a risk on the road.
Much of determining your insurance costs is down to your individual risk profile, which is based on the factors stated earlier in this article. If you can work on those, you can ideally reduce your insurance costs.
