South Africa’s recent junk status rating is likely to lead to hikes in car insurance premiums.
The South African Insurance Association (SAIA) – the representative body of almost 60 short-term insurers – warned that the downgrade by Standard and Poor’s would have far-reaching consequences for consumers.
Viviene Pearson‚ SAIA’s chief executive said: “This is bad news for all South Africans and businesses.”
She said the impact of the downgrade was expected to hit the short-term insurance industry in particular.
“This means that the cost of motor parts‚which are mostly imported‚ will increase exponentially‚ which is likely to lead to increased repair costs followed by increased premiums for policyholders; over and above higher cost of living for consumers.”
Pearson said the knock-on effect of the downgrade could be short-term insurance becoming less affordable.
“This could expose consumers to financial risks in the event of a loss or damage to assets. Furthermore‚ motor body repairers building industry and others‚ will feel the pinch of less work‚ leading to job losses.
“This is all something that our country cannot afford at a time when the economy is growing at the slowest pace since the 2009 recession‚ and with the official unemployment rate sitting at 27%.
“What we need is macro-economic stability and policy certainty‚ which supports sustainable inclusive economic growth‚” said Pearson.
Automobile Association spokesman Layton Beard said possible premium increases were likely to result in consumers considering cancelling their policies.
“Things are going to get pricier. When you get to this kind of crunch situation‚ people look for ways to cut back. One of the things people look at doing is cutting insurance. Insurance for your vehicle is very important. Only 45% of the vehicles on the road are insured.
“If you have an uninsured vehicle and you’re in an accident with another uninsured vehicle chances are both of you will have to fund repairs out of pocket‚ which can be very costly. If you at look things like component parts imported from overseas‚ these are likely to get very expensive.
“Keep that insurance cover for as long as you can. It is expensive to have insurance but it’s more expensive not to‚” said Beard.