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Why premiums are still high on old cars

Like many short-term insurance policy holders, you may have wondered how it is that your insurance premiums remain the same or increase, yet your vehicle value depreciates year on year.

Glen Langenegger, general manager of Budget Insurance, explains, "While most customers assume that the biggest risk to their vehicle is theft or a complete write-off, this isn't the case. In reality the actual value of the vehicle is not a major determinant of the premium price; rather factors such as the cost of repair play a far more significant role."

Indeed, the greatest risk to clients and thus the insurance company is the cost of vehicle repairs as a result of an accident. In recent years these costs have escalated above expected inflation levels. This has principally come about due to the ever-increasing sophistication of modern vehicles. Even entry-level vehicles these days include sophisticated components previously seen only on higher-end models. Many components, which may have been safely repaired in the past, now need to be replaced by expensive new integrated components.

For example, the fitting of new airbags in the modern vehicle alone may amount to some forty to fifty thousand rand.

Another important factor is that comprehensive motor insurance covers not just your vehicle but any damage to third parties as well. Should you cause an accident third party claims will be covered by your insurer, and he has no way on knowing whether you will clout a rusty VW or a brand new Porsche. So he has to price your policy for this risk accordingly.

"Of course, having a vehicle properly repaired should be a priority to both client and insurance company," he points out. "This is necessary, not only for the appearance of the vehicle, but also for safety reasons. Hence, as a broker, we will only place business with underwriters that utilise reputable repairers and undertake to offer a lifetime guarantee on maintenance work."

For further information on Budget insurance please call 0860 40 50 40 or visit the website at www.budget.co.za.