FIFI STONES: At this time last year it would have cost a heavy truck [owner] around R327 / month for insurance coverage worth R2 million at the public insurance company known as Sasria. But things are about to change. Following the riots in July, [Sasria] insurance for the same truck will cost just over R6,000 from February of next year. This is a fairly large increase and it applies to other segments, including commercial vehicles and taxis.
Muzi Dladla, Executive Director of Stakeholder Management at Sasria, joins us to help us understand the increases that are expected to take place at Sasria. Muzi, thank you very much for your time. Sizeable increases across the board are expected to start from February. I mean, the freight industry itself has already described some of what is about to happen as “unfair”; nonetheless, just help us understand why.
MUZI DLADLA: Good evening Fifi. Thanks for having me on your show once again. With the increase, particularly on the truck side, I think it’s important to understand that it’s not just about an increase caused by the unrest you’ve seen recently. It was obviously exacerbated by this, but there has been a wastage rate problem with trucks for a long time.
Just to give you a perspective, from around 2013 to 2017 the average loss rate we had there is around 240%, which means that for every R1 that was paid as a premium, R2.40 has been paid in claims.
So in 2019 we changed the structure to create a particular extension or rating methodology that is specifically for trucks.
Before, it was a fixed rate. Now it is calculated on the basis of the value at risk per truck, which means lower value trucks will pay a lower rate, and those with a higher value – like a truck worth $ 5 million. rands – would then obviously have a higher premium as a result. This is the first thing to understand.
And then the fact that trucks in particular have been a problem in the past is obviously [why] we make sure that the premium is calculated accordingly so that it is not subsidized by other classes, because you know that there have been many, many protests and unrest where a lot of trucks have been burned and burned down – especially what has been happening in South Africa, with many reasons why this is happening.
But at the end of the day, it’s an ongoing problem. It has now come to a point where we need to fix it like we did.
FIFI STONES: Sure. But then, if you put the effects of the riots aside, if you put that out of the equation, why did it take you so long to adjust to the risk around heavy trucks, because that adjustment is now as if someone essentially asks you to swallow an elephant in one bite by the quantum in which the increase will take place.
MUZI DLADLA: Let me put it like this. The increase itself – as it is now – would potentially have been the same if we had done it a year ago or even two years ago. We couldn’t necessarily assess, in its entirety, the impact of the riots as it is now because, as you know, it is in the billions. There’s no clawback you can do in terms of pricing when we price it for it, so we’ve standardized it.
We now assess the risk in particular as it is experienced. In other words, all expenses of all claims that we have had over time, excluding the case of [this] July is our pricing.
The reason we have taken so long is that we are the only insurer to take on the Sasria risk. I think the most important factor here is that there was a premium for all specific trucks, regardless of value, when in fact it’s the ones with a higher value that are impacted the most. I think this clarification needs to be made. It’s not all the trucks you have [on] the route which is impacted as such. So we had to wait until the risk itself had reached the current level. If we had implemented it about a year or two ago, I think the impact of the increase would have been relatively the same anyway.
FIFI STONES: And then the element of the riots in July? From what I understand, insurance companies adjust to current risk and also try to cover themselves for the potential of future risks. I’m just wondering, with the increases we’re seeing – the really big increases on a few vehicle lines, your commercial line, your commercial cars, even taxis, and then the different degree of trucks – does Sasria also say that worried about a possible repeat of the riots that took place in July recurring in the future?
MUZI DLADLA: This is a good question. First, pricing itself might not necessarily be able to handle the impact of a return to a similar scale. It is possible that this will happen again, that we will have other disorders of the same magnitude or less. But obviously there are other elements that we take into account. What we are doing now to protect Sasria per se is that we have obviously changed the way we reserve our assets. We have also changed our reinsurance structure to ensure that attrition losses we can manage are part of our risk appetite. We still keep taking those on our balance sheet, but the big events in proportion to what we’ve seen now, we transfer all of that to a very large extent; and we’ve really changed the way we hold business and we’ve really changed the way we transfer some of that risk. So, should this really happen, we are not only exposing Sasria’s track record to the extent that it has been so far, but we are including other reviews of reinsurers in particular in that sense. So there are various things that we have done – not just increasing premiums, because increasing premiums on their own can never be enough to do that.
And third, there are the risk mitigation measures that we have implemented, including collaborations with security clusters and any other risk mitigation measures that we could put in place to try to make sure. mitigate the impact.
FIFI STONES: Muzi, unfortunately that’s all we have time for at this point, but I imagine it’s a conversation we’ll have until 2022. We’re going to leave it at that for now. Muzi Dladla is the Executive Director of Stakeholder Management at Sasria.