My C63S AMG is not insured. Here’s why…

In summary, car insurance in South Africa is tantamount to daylight robbery. More so during a pandemic. Car insurance premiums are unfairly calculated. We are mostly working from home!

Yes, I am a Certified Financial Planner and accredited to provide financial advice. So let me say this upfront: what you are about to read is not financial advice. It’s sharing my opinion about something that I feel passionately about.

Firstly, before you criticize me, like my rivals usually do, about cars being the worst form of investment, listen up. My cars are paid for in cash from a portion of the returns of my successful investment portfolios. “Which investment portfolios?” Well, this investment advice is only available to my paying clients. Click here for information on how to enroll my services. Please do not contact me for free advice.

Secondly, I often get attacked by pseudo financial experts: “Don’t buy cars with cash. Use cash to leverage debt. Use debt to build wealth.” Nonsense. When Robert Kiyosaki advises to use debt to grow wealth, he is talking to an audience that can borrow money cheaply. This audience, with good credit records, also has many options to invest in high yielding assets. The lending rate in the US is 3.25%, with an inflation rate of 0.62% . South Africa has relatively high lending rate(>7%) and medium inflation rates (3.3%). South Africans have limited access to high yielding assets.

Finally, in the communities that I come from, I saw the worst side of Banks (and Insurance companies). When it comes to foreclosure and repossession of assets, you simply have to miss two installments and they are onto you like a pack of African hyenas. “No sirree Bob, I ain’t gonna make myself a slave to them banks.” Never!

The facts about car insurance in South Africa

Our very sharp consumer journalist, Wendy Knowler, wrote a tongue in cheek piece entitled “Car insurance companies smiling as claims drop during lockdown”. This got me thinking. Prior to the lockdown 63% of premiums collected by insurance companies was used to fund claims. During the lockdown, this reduced to 51%, and even lower during some quarters of severe lockdown. So, on average, premiums should have reduced by 12%. Has your premiums reduced by this much? I can tell you that this was only applied when I requested it on behalf of my clients. It was not automatic and many appeals were rejected.Did your broker do this for you?” No? Fire them and contract me as your broker.

Here’s the caveat: your insurer and your advisor want the lion’s share of your wallet. Your adviser gets a monthly commission, as a percentage of your insurance premium. He/she has flexibility to reduce it to zero. If you have a massive investment portfolio with your broker, for instance, then you have the right to reduce this commission on car insurance to zero. If insurance is the only product with your advisor, then reducing commissions is sacrilegious.

Car insurance premiums before the pandemic

Let’s go back a little. In 2019, 63% of the premiums collected was used to fund claims. Where did the 37% of the premiums go? In 2019, R37 bilion was collected in premiums by car insurance companies. This means that about R14 billion was retained (37% of R37 billion). About 4% was paid out to brokers and a portion was used for operating costs. This resulted in insurance companies seeing at least R10 billion in pure profit in 2019.

In 2020, they made even more money, while the majority of their clientele was struggling to keep head over water. Minimum reprieve was offered. That’s unacceptable.

How are premiums calculated?

I wrote a piece on the 15 factors that impact car and home insurance, make sure you read it here.

Location is one of the larger weighting factors. I know this firsthand. When I moved from Mossel Bay to Durban, my Outsurance car insurance premiums doubled! Nothing else changed. Using location as a factor in South Africa could be (falsely) interpreted as racial discrimination. Why? South African race groups are still divided by location. This is a relic of the Apartheid bylaw, the Group Areas Act. Look at the picture below and you will see what I mean.

In fact, Discovery Insure prides itself that premiums in the Western Cape are 20% lower than the national average. This irks me due to the fact that the merits of the individual do not take precedence over location. If you have never made a claim, drive safely and park your car in a secured area then your premium should be low irrespective of where you chose to live.

car insurance premiums could be guilty of racial discrimination.
Map showing the distribution of South Africa’s population, as well as the population distribution of Black, Coloured, Indian and White South Africans.

Insurance premiums during the pandemic

Let’s go back to the 51% in premiums used to fund claims in 2020. Who funded these claims? You and I did! (Well less me and more you). You have not made a claim in 2020 as you were in lockdown mode. But Joe Soap, who did not care about lockdown regulations, drove recklessly late at night, probably inebriated… and made claims. That’s BS and is the main reason that my C63S remains uninsured. I hardly used it over the last year.

Now let’s discuss escalating premiums or annual increases. Your insurer’s motivation is ” spare part prices increase according to inflation”. Well, inflation is 3.3%, insurers increased premiums by about 8%. And our car’s value depreciates by 20% after the first year of purchase and by 10% every year thereafter. Don’t give me BS about annual increases. If you are a King Price or Chilli client, I can see you smirking. Well, to burst your bubble, your excesses are, on average, higher than the competitors, so go and look at the fine print again, please? Then let me fix it up.

Where does this leave us?

Firstly, when I park my car far away from the maddening crowd, please don’t be that moron that parks right next to me. Okay? There’s a reason I parked there. Stay away. Secondly, if you are thinking of stealing my C63S, I quote Achmed the puppet ” Silence, I kill you!”

Not every one is like me. I get it. You need car insurance at the lowest possible premium. But you have no clue on who to trust to give you the best insurance advice. Do not fret. You can trust me.

Send me your contact details, and I will optimize your insurance like you have never seen before. I will make sure that every trick that your insurer pulls on you is uncovered.

I just do not like them and this fact, my friend, is why you should have me on your side.

Get in touch with me.

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