Motoring15.01.2025

Big car insurance pain in South Africa

South Africa’s major vehicle financiers and banks must regularly check up on their customers to ensure their cars are comprehensively insured.

They are also empowered to automatically add insurance policies to uninsured vehicles that are still being paid off.

Car dealerships offering financing require that car buyers present proof of comprehensive insurance, which provides them with financial protection against damage or a total loss for a monthly premium.

However, cancelling that insurance after driving the vehicle off the showroom floor is very easy.

The Automobile Association of South Africa has estimated that as many as 65% of the country’s roughly 11 million registered cars are uninsured.

While the loss of an insured car is already costly, the repercussions are even greater for those with financed vehicles that have yet to be paid off.

Even if the vehicle is no longer being driven, the person in whose name the vehicle loan is registered is still financially obligated to pay off that debt.

Standard Bank VAF enablement head Glenn Stead told MyBroadband that the bank saw a high level of cancelled policies after vehicle delivery.

“The sad reality is that when customers feel financial stress, one of the first items that they cancel is insurance as it is seen as a grudge purchase,” Stead said.

“They do not fully understand the implications of cancelling their insurance.”

Stead explained that comprehensive insurance on financed vehicles was a requirement under the National Credit Act (NCA).

“This is to ensure that the customer can repay their debt to the bank in the unfortunate event of a write-off,” said Stead.

“Imagine owing the bank hundreds of thousands of rands, with no vehicle to show?”

Stead emphasised that the bank or financier still technically owned the vehicle until the creditor fully repaid the loan.

He said Standard Bank verified whether a customer had comprehensive insurance on their car every year on the anniversary of their finance deal.

If a customer cannot provide this within a stipulated timeframe, Standard Bank automatically adds a charge for comprehensive insurance to their vehicle premium.

“However, if a customer can prove that they have had insurance all along and that they simply ignored our requests for proof, we reimburse them any premiums that we charged whilst they were insured elsewhere.”

Wesbank marketing and communication head Lebogang Gaoaketse said the financier required comprehensive insurance as part of its finance agreements.

Gaoaketse said customers may be requested to provide monthly proof of insurance if the financier detects a lapse or cancellation of the comprehensive insurance on the vehicle.

Wesbank adds a limited insurance cover product to its premiums in cases where a customer fails to provide feedback on a request to submit proof of insurance.

“This provides cover only in the event of total loss of the vehicle,” Gaoaketse said. “The premium will never be more than 2.5% of the outstanding balance calculated on an annual basis.”

The fee is added to the monthly instalment and may be reviewed annually over the term of the vehicle finance agreement as the balance of the outstanding debt changes.

Absa vehicle and asset finance managing executive Charl Potgieter also said that its customers were required to provide proof of insurance whenever requested by the bank.

However, the bank generally also verifies insurance cover on its financed vehicles every 12 months.

“This exercise provides peace of mind to our customers that their assets are comprehensively insured for any damage, accident or theft at all times, as well to protect their ability to meet their credit commitments,” Potgieter said.

Absa also adds a specific insurance risk mitigation product to the premiums of customers who fail to prove proof of insurance within a certain timeframe.

Once this proof of insurance is furnished, the additional premium is removed.

If you wish not to be bothered with repeated requests to provide proof of insurance, you could take up a policy directly with your financier or bank.

However, affordability and specific may be two of the key priorities when choosing an insurer. A bank or financing house may not offer the best premium, excess, or other insurance features that a car buyer desires.

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