Is race a factor in insurance?

In the wake of recent media reports about SA banks’ alleged racial discrimination against low-income blacks by charging them much higher interest rates than whites, some are questioning whether the same applies to insurance premiums.

When an insurer tweeted this advert: “Buhle is paying just R702pm for her 2019 VW Polo. Isn’t it time you see if you could be saving on your premium?” Phumudzo responded: “Buhle is probably white. Y’all quoted me R2,300 for a 2015 Vivo.”

Bankers and insurers will argue vehemently that their interest rates and premiums are based mainly on risk.

This would mean smaller mortgages in riskier areas, and higher premiums for those who live in statistically riskier areas and drive riskier cars in a riskier way.

But given the warped political and social history of this country, some of the riskiest areas remain predominantly home to black people.

The insurers say their underwriting departments determine risk by means of complex statistics and mathematical calculations, but assessing risk on the basis of statistics has the potential to offend, especially if the statistics are not current.

Race never features on the list of factors that the short term insurance industry admits to using to determine risk, but what is on that list is sexist and ageist and whatever “ist” applies to giving married people a better rate than single or divorced ones.

Yes, if you get divorced, you are considered at higher risk than when you were married.

That is presumably because they assume you will be more likely to be out partying into the small hours, which is when most accidents happen.

Drivers under 25 are considered to be the highest risk, and male drivers pay higher premiums because, well, the statistics say they cost insurers more in claims than women do, despite woman driver jokes.

If you have had a few claims in the past three years, you will be considered high risk.

And an Uber driver is considered to be a massive risk, while on the other hand, the person who works from home is low-risk.

The car you drive counts for a lot in determining your premium, of course, and many factors go into the number crunching, including its current value, the cost of its crash parts, whether or not it is a 4x4 and how likely it is to be stolen or hijacked.

Where you live and how you secure your car overnight also affect your premium.

So while it does seem ludicrous that Buhle is paying R702 a month to insure her 2019 VW Polo, while the same insurer quoted Phumudzo a whopping R2,300 for a four-year-old Polo, all those other factors play a part in creating that huge discrepancy.

Gender, age, marital status, residential area, claims history and whether the car has been modified, for starters.

And there is another factor, one that a direct insurer has based a long-running TV campaign on.

If you have been with your current insurer for many years, and you have not phoned around to find out if your premium is competitive or not, you are almost certainly paying too much.

Here is how one direct insurer put it to me: “Most insurers offer new customers a very low new business rate, in order to remain competitive in a very price-sensitive industry, which is then corrected over time.

“Keeping customers on a new business rate is not sustainable over time.”

So do not be that loyal, longstanding client who is subsidising all those lovely low premiums for new clients.

Phone around at least once a year to get car insurance quotes. Chances are your insurer will match a lower quote rather than lose you to a competitor, especially if you have not claimed in a while. –