The short term motor industry is unsustainable in its current structure and at current premiums, says Ian Labram, Manager, Aura Motor at Guardrisk who warns of deteriorating underwriting results driven primarily by poor loss ratios on insurers' motor books.

Even worse off are standalone motor insurers as they do not have the income from other more profitable classes of insurance to offset their motor book losses since "these days net premium alone is insufficient to generate corporate profits" adds Labram.

In the current cycle even insurers who can rely on other insurance classes to float their motor books are hard hit by falling interest rates and reduced investment income.

While various alternatives are being explored to return this segment of the insurance industry to break-even, or perhaps even profitability, Labram has identified the main factors responsible for poor motor loss ratios in South Africa as:

• Inexperienced drivers
• An increasing percentage of new licence holders
• Fraudulent licences
• Uninsured motorists, meaning that loss costs are not evenly spread across all drivers. Instead the insured, and their insurers, carry the burden of the uninsured. In this environment legal recoveries become expensive and fruitless exercises.
• Insurers not getting the salvage and recoveries due to them, or being paid late as salvage dealers experience cash-flow problems or go out of business.
• Reduced sums insured due to increased levels of depreciation on new and used cars, meaning that insurers have less premium with which to pay claims even as claims costs increase due to labour, imports and parts inflation.
• More imported vehicles costing more to repair, plus the time spent waiting for parts is increasing downtime and extending replacement vehicle hire costs.
• Roads in South Africa are undergoing road works or are in a poor state of repair, leading to higher accident frequencies and increased windscreen claims.
• Reduced motor sales and increased repairs put pressure on the South African automotive repair as well as the spares industry - driving up labour rates, squeezing margins and increasing repair costs.

"These factors threaten the sustainability of the motor insurance industry in its current form, and certainly at current premiums, over the longer term" warns Labram.