Accident repair costs lead to write-offs

Car insurance policyholders are waiting with baited breath to see how insurance companies are going to deal with the rising costs of accident repairs. Although no indication of increases in car insurance premiums has been given by any of the major insurance companies, the increase of 37 % on two-thirds of all imported replacement parts must ultimately be passed to the client.

Replacement parts represent 60% of repair costs and as such are a major cost driver for insurance premiums. Approximately 65% of all replacement parts are imported and their costs are therefore influenced by the struggling Rand.

Cost repairs are however not the only factor considered by leading insurers when determining car insurance premiums and generally the strategy followed by leading these companies is not to react to short-term economic cycles. There are a multitude of risk and cost factors on which premiums are based including currency fluctuations, inflation as well as the size of the insuring market. The risk of theft also affects the premium differential and the higher repair costs of some imported vehicles are offset by the lower incidence of theft of these vehicles.

Generally insurance companies write-off vehicles when it is not economically viable to repair the vehicles; mostly when the repairs exceed 70% of the insured value. The increase in procuring replacements parts is likely to result in a substantial increase in vehicle write-offs.

The National Credit Act and rising interest rates have contributed to the slump in the used car market. Used vehicle prices are determined by supply and demand and under current economic conditions these prices are depressed and it is anticipated that they will remain so for at least another year. This increases the likelihood of write-offs as the costs of repairs rise.

If the cost to repair your vehicle reaches the 70% mark and the Insurer decides to write-off the vehicle, but you would prefer to have the vehicle repaired, it may be worth your while to discuss this with the Insurer. The use of second-hand parts for the repairs may reduce the costs of your claim to below the 70% mark, thereby making repairs an economically viable proposition to both parties.