South African car owners warned about insurance

Only 30% to 40% of South African vehicles are fully insured, which means that most of the country’s car owners are financially vulnerable.

This is feedback from Schalk Fischer, Insurance Vertical Sales Leader at TransUnion, who spoke on the Kaya Biz podcast.

TransUnion’s Q2 2024 Insurance Trends Survey revealed how popular financing is, with 70% of purchased vehicles being financed.

Fischer explained that almost 70% of consumers who apply for financing do so over the maximum term of 72 months and take the maximum residual on the payment of the vehicle.

Moneyweb reported that vehicle finance terms have gradually shifted from the standard 60 months to 72 months, which is now the default for many offers.

To lower monthly payments, these often include balloon payments. Six-year loans have also become common, and some brands even promote seven-year options.

On top of this, banks like WesBank now offer vehicle finance contracts lasting up to 96 months. This is all done to minimise your monthly payment, Fischer said.

However, the problem is that if you’re already maximising your affordability in purchasing the vehicle, it is likely that you will start looking at how to shave off other areas of your budget as well.

Specifically, many South Africans, particularly car owners, view insurance as optional rather than essential.

“If you put it in context, only 30 to 40% of all vehicles on the road are actually fully insured, which means that 60%-70% are not insured.”

“That’s where the disconnect comes,” Fischer said. “I need a car. So I buy the car. I like the emotional portion of buying the car and owning it with all the bells and whistles, but I don’t factor in the cost of insurance.”

When buying a car, it’s crucial to plan your budget carefully to include the vehicle’s cost and maintenance and insurance expenses.

If you’re stretching your budget to its limits – taking the longest possible loan term, opting for a large residual payment at the end, or agreeing to a 30-40% balloon payment – it’s a sign the car might be beyond your means.

In that case, Fischer urged buyers to consider reducing optional extras or choosing a more affordable vehicle. Focus on the total cost, including insurance, and don’t let emotions override practical financial decisions.

Unfortunately, many people come to regret their decision not to get car insurance once it’s already too late, Fischer explained.

“Insurance is seen as an optional extra instead of being seen as a mandatory must-have.”

“When your car is in an accident, whether it is your fault or not, there is a very, very high likelihood – 60 to 70% – that the person that you drove into, or the person that drove into you, does not have insurance.”

You will be left without a working vehicle, and if you do not have insurance, the cost of repairing or replacing that car will fall entirely on you.

“If the vehicle is still under payment, you still have to pay it back to the bank. Now, all of a sudden, you’re paying the bank for a car you don’t have, and you can’t replace the vehicle, putting you in a worse position.”

For many South Africans, their cars are necessities they rely on every day to do essential tasks such as getting to work.

Considering the lack of good, accessible public transport in the country, many people would struggle to get around without their vehicles.

While many people view car insurance as an excessive and avoidable expense, there are plenty of affordable options on the market – especially considering how important people’s cars are to them.

“People need to really start taking advantage of the incredibly sophisticated insurance industry that we have in South Africa,” Fischer said.

“The South African short-term insurance industry is actually one of the leading industries if you compare it to some of the offerings that we have worldwide.”

“Part of it is because it’s such a competitive environment. So we are blessed by the fact that there’s huge competition and because of competition, everyone is looking for the edge to find their segment of the market that they can service.”

This means that consumers have a lot of options and variety when shopping around for vehicle insurance, Fischer explained.

“We can go and look at multiple insurers, and they all have a different market segment that they are looking after.”

Some companies target younger clients, while others have offerings that cater specifically to older, more risk-averse clients who prefer to work through their brokers.

There are plenty of affordable insurance options available if you shop around, but is is essential to view your car insurance as a must-have rather than an optional extra.

TransUnion found that of the car owners who shopped around for insurance in the last 12 months, 55% found a better deal and moved insurers.

For example, if you have some cash flow, you can manage your risk by adjusting your insurance excess. Many insurers let you increase your excess – the amount you pay upfront in case of an accident, such as R5,000 or R10,000.

This limits your financial risk to that amount, lowers the insurer’s risk, and reduces your monthly premiums accordingly.

For people who have a car but don’t drive often, many insurers offer low-kilometre options, which will reduce the monthly premium.

You can even suspend your insurance, or portions of your insurance, for the period you’re not driving.

“So if you’re going away for the holidays, and you have 30 days of your car sitting in the garage, there are insurers that will actually reduce your premium for Christmas,” Fischer explained.

Good, careful drivers can also take advantage of apps that measure their driving and give you insurance benefits for driving well.

You can find plenty of good deals if you make an effort to look around, but neglecting car insurance completely is never a financially advisable position.