Car prices have been on the rise for the better part of the past three years and inflation and interest rates followed.
As such, if you needed to replace your ride following an accident or total loss due to theft, “your insurance cover may not be sufficient and come at an extra cost to you,” said Anton Ossip, Discovery Insure chief executive.
Car insurance and Covid-19
Since the Covid-19 pandemic hit and caused worldwide parts shortages and supply chain problems, prices for new and used vehicles have been on the rise.
TransUnion’s latest index showed that new-car price inflation at the end of Q3 2022 stood at 6.8%, almost double the 3.8% recorded in the same period a year prior.
The used-car space saw an equally steep climb from 6.8% in Q3 2021 to 9.0% a year thereafter, well above the general inflation rate of 7.6%, said Ossip.
The depreciation of the rand is another factor contributing to the sharp increase in prices, as a close correlation exists between new vehicle sales and South Africa’s GDP growth rate.
Therefore, “the market is not expected to grow all that much beyond pre-pandemic levels,” said Ossip.
“This is attributed to consumer spend cutting because of increasing interest rates and overall inflationary pressure on people’s pockets.”
Consequently, research shows South Africans shopping for new vehicles are tending toward the R200,000-R300,000 price bracket, due to the unexpectedly high prices in the new market and constantly-rising window stickers in the pre-owned sphere.
Quality used autos are also becoming harder to find as well as more expensive because consumers can’t upgrade as often as they’d like to anymore, and they are now forced to hold on to their wheels for longer than they would have in the past.
All these inputs effectively mean “a client’s vehicle isn’t likely to be replaced at the same value using the payout they’d receive on their current cover plans,” said Ossip.
“It’s more than likely that the replacement value of [their] car will be higher.”
In response to this phenomena, certain insurers have launched new products to provide additional assistance to their customers when they need to replace their daily driver like-for-like.
In the case of Discovery Insure, it takes the form of the Retail Value Booster Benefit for its car insurance clients.
For an additional cost on their premium, the product “boosts the retail value of a client’s vehicle by either 15% or 25% where there is a total loss,” said Ossip.
The Booster aims to make it easier to find a replacement that is equal in value to the car that you lost for a small monthly fee rather than one big lump sum.
Keyword: Your current insurance probably doesn’t cover the replacement of your car