Have you ever wondered what you pay for when you take out an insurance policy? What happens to every single rand that you pay? Is it fair?
The Managing Director of Integrisure, Arnold van der Linde, says if all insurance companies abide by the law, policy holders should have no reason for concern. He points out that every insurer must be in possession of a licence to act as an insurer, and that the industry functions under the strict supervision of the Financial Services Council.
“Insurance isn’t and shouldn’t simply be a money making racket. It should add value to the lives of people,” says Van der Linde. “The concept of insurance is that all premiums go into a pool, which is then used to pay those claims that are submitted and approved.”
According to Van der Linde, the largest portion of any premium is used for the payment of claims and is, therefore, directly returned to claimants. As soon as this portion of the premium becomes insufficient to cover the payment of claims, premiums have to be adjusted. According to Van der Linde, the remaining portion of the premium is used to pay for the administration of the insurer, broker or service provider. This includes their profit margins, as well as e.g. underwriting abroad in order to counter possible disasters.
“Unfortunately the current crime level in South Africa as well as the high incidence of vehicle accidents are such that premium adjustments occur all too frequently,” he says, and adds that the government an all other relevant parties are obliged to start considering drastic steps in order to normalise the South African society. “The excessive number of claims, all contributing to premium increases, will only be curbed once there is an effective clamp-down on crime – particularly theft – and a significant decrease in the accident rate.”
Van der Linde says the insurance industry itself can also do much to reduce their administrative costs. There is still too much duplication of administrative actions between insurers and brokers that can be eliminated through modern technology. He says the industry should, therefore, get its act together urgently. “In order to reduce duplication, there is a tendency nowadays to increasingly utilize the services of specialist portfolio handlers. This, in the long run, should make insurance less expensive in certain markets as the so-called ‘post box brokers’ either integrate with the new tendency or disappear. These brokers simply cause costs to rise and add very little value, if any.”