Usage-Based Insurance in South Africa

Usage-Based Insurance in South Africa
Usage-Based Insurance in South Africa. Image source Pexels

South African fleets and insurance companies are facing a critical juncture with regards to the implementation of usage-based insurance plans as compelling evidence of their benefit for both continues to stack up.

One indicator is the increasing number of fleets that are applying the concept in Europe and North America. Both continents have 18.4 million insurance telematics policies as of the end of 2017, with over 4 million new policies added since 2016.

The usage-based insurance market is expected to grow at a CAGR of 23.0% from USD 24.0 billion in 2019 to USD 125.7 billion in 2027 since advances in safety technology contribute to the reduction of claims.

For example, the EU mandates the use of e-assistance systems for accidents. Since March 2018, the eCall system has become a requirement for all new EU automobiles and has reduced emergency response time by an average of 40 to 50%.

Russia adopted a similar system for new cars in late 2017, while Mexico is implementing radio-frequency identification (RFID) tags to improve anti-theft systems.

South Africa and other countries like China, Singapore, and Germany have voluntary UBI incentive programs, but the lack of standardized systems and regulatory ambiguity makes it difficult for the market to expand.

What is Usage-Based Insurance?

Usage-based insurance (UBI) is a type of auto insurance that can track how far, where, and how a vehicle is driven, depending on the insurer’s program.

The data used for UBI usually comes from telematics which is a type of technology that is either pre-installed in the car’s network or made available through plug-in devices or mobile applications. This way, the insurers can use people’s actual driving data to calculate risk and insurance premiums instead of variables such as age, gender, and driving record.

The data collected by telematics is sent to insurance companies and allows them to assess the risk profile of specific drivers and reward safe drivers with lower premiums. This often results in 20 to 40% cheaper premiums, which can be particularly beneficial for companies that use several vehicles for business purposes and want to save on insurance products like commercial vehicle insurance, bobtail insurance, and non-trucking liability insurance.

How Can SA Fleets and Auto Insurance Companies Benefit from UBI?

Although the concept of charging fleets based on usage has been around for some time, it hasn’t yet been widely implemented in South Africa. Because auto theft and hijacking are prevalent in SA, insurers are currently rewarding fleets that utilize telematics devices, primarily because they make it easier to locate and recover stolen vehicles. Telematics devices as a tool for tracking driving behavior are still in the early stages, but wide-scale implementation would have the following benefits:

  • Insurance companies will have more precise data for risk assessment
  • Fleets will also have access to this data and can reward or penalize drivers according to their driving practices
  • Fleets can save up to 40% on insurance premiums
  • Being able to assess a driver’s risk profile more precisely and encouraging drivers to prioritize safety will also mean that less money will be spent on accident claims
  • If an accident does occur, the data from telematics devices can be used to compile a report and determine who was at fault, which will facilitate the detection of fraudulent claims.