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Thursday, January 1, 2009
Accident disrepair

As the Rand weakens insurers will find that the cost of replacing parts will drive up the cost of motor claims and increase the number of write-offs.

“In a weak rand cycle, vehicle part replacement values tend to increase more than the CPIX,” observes Gari Dombo, Managing Director, Alexander Forbes Insurance.
This is because all imported vehicles rely on fully imported parts when it comes to repairs, and even so-called locally manufactured vehicles rely on some imported parts.
Either way Dombo believes that “if we work on an average of 35% local parts content for all locally manufactured vehicles we will be very close to the mark.”
This means that, on average, approximately 65% of parts (by value) fitted to all vehicles following an accident are imported. “When the rand depreciates from, say, R7.30 to the US Dollar, to R10 to the Dollar imported parts cost a South African company 37% more to procure on the international market,” he points out.
And a 37% increase on 65% of all replacement parts is significantly in excess of the CPIX.
“This increase in cost will ultimately be passed to the client,” he warns.
Furthermore, insurers generally write off a vehicle when repair costs amount to 70% or more of the sum insured. This is the level at which insurers believe a repair to be uneconomical.  For a used vehicle, replacement cost is determined by supply and demand. Under current economic conditions used vehicle prices look set to remain depressed for at least another year.
Hence, as the cost of repair goes up, so does the likelihood of write off – especially of used vehicles. “If, however, you'd prefer to have your written-off used vehicle repaired, your insurer might agree to do this using second hand parts,” he concludes.

Copyright © Insurance Times and Investments® Vol:22.1 1st January, 2009
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