New legislation may increase car insurance premiums

Insurance Pic

Government is planning a raft of changes to the National Road Traffic Management Act that could indirectly affect the insurance premiums the average consumer has to pay to protect their car in the case of accident damage.

The change to legislation is aiming to ban the sale of used car parts of accident damaged vehicles. When a car is permanently written off, it is declared a Code 4. This means the car can never be licensed again as it is, but under current regulations, parts may be salvaged and sold to repair other vehicles. As is often the case in accidents, one side of the car may be badly damaged, but a significant portion of the car remains salvageable.

It is a lucrative industry but one that leaves the door open for crime. Stolen cars are stripped for parts and those parts are “hidden” in the network of legitimate parts. It is this aspect of the industry the government is hoping to tackle, but the insurance and salvage industry have voiced complaints that they have not been properly consulted, or that the legislation is potentially damaging.

The effect on the South African motorist will be felt more directly, as the changes may potentially raise the monthly cost of running a vehicle, by pushing up insurance premiums, particularly when insuring older cars.

If 2nd hand car parts are banned for the repair of damaged cars, insurers will have to use much more expensive new parts. This in turn pushes up the price of repair generally. Additionally it may result in more cars may have to be written off as the repair becomes uneconomical.

Insurers will factor this into their pricing models and it will likely raise the average car insurance premium. The South African Insurance Association (SAIA) met just a few days ago on July 1st to discuss the issue, and released a statement saying the draft legislation, if implemented, would have severe and unintended consequences to customers and the insurance industry.

The SAIA is due to meet the Department of Transport to further discuss the issue. The association has sent there proposals to the DoT. Clearly, the matter requires much debate. We’ll keep tabs on this issue and break down the likely or possible effects it will have on your pocket as the story evolves.