Traditionally, motor insurance has been driven by events – accidents and thefts. These have defined risk perceptions, established insurance models and determined the cost of vehicle insurance. In future, however, the external, environmental and behavioural factors influencing risk will define risk perceptions and set insurance pricing.
“Shifting the conceptualisation and management of risk from reactive risk-based assessment to a more proactive focus on the broader environment contributing to risk may also save South Africa’s loss making vehicle insurance industry” says Volker Von Widdern, Managing Director, Marsh Africa, Marsh Risk Consulting.
In short, how the external, environmental and behavioural influencers of risk are managed will likely become the leading determinants of risk and what it costs to manage risk in future.
Insurance should not be seen as the primary risk mitigation tool for either individual vehicle owners or fleet vehicle operators. Instead, beyond insurance - or the clever management of vehicle fleets using electronic vehicle mapping, or telematics - there is a need for a broader form of risk awareness encompassing an assessment of behaviour, training and the operating environment.
In other words, “in future we’ll be taking a risk weighted usage view of the operation of vehicle assets” says Von Widdern.
Individuals and businesses that own and operate vehicles in South Africa along with the companies that ensure them face a unique combination of risks.
Since approximately two thirds of vehicles in South Africa are not insured, the country’s premium pool is inadequate relative to the total number of vehicles on South Africa’s roads This means that risk costs significantly more for vehicle operators in South Africa.
Furthermore, poor provision of information by individuals or fleet managers often prevents thorough risk profiling and analysis. The result is that South African underwriters face narrow margins and significant underwriting losses from both individual and business clients.
A legacy of South Africa’s development and demographics is a high number of barely roadworthy or illegal vehicles on our roads. Add to this periods of massive concentrations of traffic on limited road infrastructure - during the Easter rush to Durban or Polokwane, or December holiday traffic congestion, combined with high levels of overloading of both passenger and freight vehicles, poor or deteriorating road networks and high concentrations of road users on all classes of South African roads means that “the vanilla picture of driving conditions presented by most individuals or fleet managers when calculating risks and premiums simply doesn’t apply in South Africa” says von Widdern.
The result is that South Africa suffers in excess of 10 000 fatalities per annum, more than ten times the rate of other countries with similar vehicle populations.
Given the costs of vehicle risk in South Africa, telematics has been variously deployed to record, amongst other things, location, acceleration, braking, cornering, engine RPM and even the number of occupants in the driver’s cabin. Often with cameras recording in the cabin and outside, the information gleaned helps vehicle risk managers deter theft, identify poor driving, overloading or assist lost drivers – reducing fuel consumption, wear and tear, accident and vehicle loss by improving driver behaviour.
Today, telematics combined with live traffic reporting and diagnostics can assist fleet owners minimise the risk of multiple vehicle damage or loss in peak traffic or poor driving conditions.
Yet not everyone in South Africa is playing by the same rules. A minority of private vehicle and fleet owners apply comprehensive risk management procedures including the use of technology to minimise risk. The majority, however, don’t. As such, risk management isn’t restricted to how owners manage their own vehicles and fleets. Other vehicle’s behaviour, condition or insurance status, or other environmental or external factors, add significantly to the risk that South African drivers face.
As such, “despite the strong orientation to enhance the analytical element of vehicle risk management, the reality is that more attention should be paid to the behavioural, training and environmental circumstances in which South African vehicles operate” says von Widdern.
For example, companies have a variety of drivers, with different skills levels, driving at different times of day or night on different road conditions in different parts of the country. This is all again influenced by the driver’s motivation, performance targets, health and logistics management etc. As such fleet managers should look to achieve behavioural targets amongst its drivers, rather than exclusively focus on monitoring or, even more simply, on getting the job done.
“Understanding how and why people drive overloaded vehicles is a key question. Why drivers don’t ring up the company ethics line when asked to do something they know their vehicle can’t handle. Why drivers are incentivised to break the rules is critical in managing risk holistically as this adds the missing behavioural perspective to the problem” say Von Widdern.
In this way Marsh is able to analyse an individual or transport business’ operating model from a quantitative and qualitative perspective and then advise on the management, training or technology required to reduce the total cost of risk.
There is a strong correlation between accelerated depreciation from excessive wear and tear or increased maintenance – and higher indicators of behavioural risk or poor training for example. As such, “all risk indicators need to be linked, including; the maintenance record, driver behaviour, vehicle telematics, delivery targets, business performance outcomes, training required and external operating environment, if the overall risk outcome is to be improved” explains von Widdern.
If all the risks that contribute to vehicle damage in South Africa, including behavioural risk, training and operating environment are managed holistically, the total cost of risk that businesses and individuals carry can be reduced, and cover made affordable for all.
