It is a question that is often asked. Why doesn't the cost of insurance come down as the car gets older and its value decreases? Gary Dombo, MD of Alexander Forbes, offers some cogent reasons.

According to Dombo most of the factors driving premiums up have little to do with a cars's value because over 90% of motor vehicle claims are for accident, not total loss. So, it doesn't matter if the value of the car is decreasing, the cost of repairing vehicle damage is constantly on the increase.  

“When it comes to paying for repairs a vehicle's value is irrelevant since the value of a vehicle is only a factor when total loss occurs” he says.
 

The other car

Also, the size of a claim bears little relation to the value of the car that is insured. In other words the cost of replacing 30-40% of a vehicle is only very slightly driven by the vehicle's value. Similarly, if you cause an accident, the costs of repairing a car belonging to a third party are not determined by the value of your vehicle, but by the damage done to both vehicles.

Another factor is that modern cars include computers and xenon lights, for example. “These generally cannot be repaired and have to be replaced at considerable cost” says Dombo.

Imported car parts

Add to this the fact that many replacement parts are imported at unfavourable exchange rates and "we go some way to explaining why repair costs continue to increase at 10 – 15% per year even as vehicle values decrease" says Dombo.  

Also, since only a tiny minority of claims are total write offs due to accident or theft, installing additional security on your car to prevent theft will not necessarily result in a significant reduction in premium as theft is not the kind of loss that is driving premiums up.

Either way, ever since security standards were agreed between the South African Insurance and Motor Vehicle Manufacturers’ Associations, insurers expect a certain level of security on vehicles. “If these standards are not met insurers would usually ask for additional security measures to be taken – without offering premium discounts” explains Dombo.

Choose reliable, local models

Since premiums increase to keep up with the ever-increasing costs of repairs Dombo suggests purchasing choose reliable models that are cheaper to repair and have parts that are readily available Think local manufacture. Ed.)

When it comes to repair the availability of parts is particularly important, "since if parts are not readily available, car hire costs could be astronomical as you wait for your vehicle to be repaired” advises Dombo.

(Despite all of the above, readers are well advised to check on the value of their cars annually, and to ensure that their car insurance policy premiums are appropriate, Ed.)