It’s the email every guy dreads. Subject: “Policy Renewal and Annual Increase.”
Your immediate reaction is logical: “Hang on. My bakkie is a year older and the trade value dropped by R30,000. Surely, my premium should be dropping too?”
It makes sense on paper. But insurance mathematics lives in the real economy. And in the real economy, the cost of fixing things is rising much faster than the value of your car is dropping.
At First 4 Men, we believe in straight talk. Here is the honest truth about the mechanics of your premium.
The “Depreciation Fallacy”
The biggest misconception in insurance is that your premium is based solely on the value of your car. It isn’t.
Here is the reality: Only a small percentage of claims are for Total Loss (where the car is stolen or written off and we pay out the full value). The vast majority—around 80% to 90%—of claims are for Accident Repairs.
And here lies the problem: A brand-new bumper costs the same for a 2020 model as it does for a 2026 model. Just because your car is worth less doesn’t mean the spare parts, the paint, or the labour required to fix it cost less. In fact, year-on-year, those repair costs skyrocket.
The Three Villains Driving Costs
Insurers also look at “Systemic Trends” impacting the industry. Here are the main factors driving up the price of repairs:
- The Weak Rand: Most vehicle parts are imported. When the Rand takes a knock against the Dollar or Euro, the price of that replacement door panel or headlight shoots up instantly. We have to absorb that cost.
- Technology (Rolling Computers): Cars aren’t just metal anymore. Ten years ago, a cracked windscreen was a R2,000 fix. Today, that windscreen has rain sensors and cameras. A headlight isn’t just a bulb; it’s a Matrix LED unit that costs R40,000. We are repairing spaceships, not just cars.
- Real Inflation vs. CPI: You hear “Inflation is 5%,” but insurance claims inflation is often higher. Panel beaters have to pay staff, buy electricity, and rent workshops. When the cost of living rises, the hourly rate on your repair bill increases, regardless of your car’s age.
How We Ensure Your Premium Remains Fair
We ensure our premiums are always in line with the market, balancing affordability with the superior value and service you expect from First 4 Men. We don’t cut corners on cover, so we price responsibly.
However, your personal track record plays a massive role in the final number. When renewal time arrives, here is what we look at to ensure you get the best possible rate:
- We Reward Loyalty (Tenure) We value clients who stay the course. We specifically look at your Tenure (how long you’ve been with us) and your Payment History. A consistent track record allows us to price your risk more favourably than a new client walking in the door.
- Your Claims History (Loss Ratio) We analyse the frequency and value of any claims you submitted over the past 3 years. If your “Loss Ratio” is low (you haven’t claimed much compared to what you’ve paid), you are a profitable client, and we do our best to reflect that in your renewal offer.
- Accuracy of Risk Profile This is where your broker adds immense value. It is vital to ensure the data we hold for you is current.
● Have you moved to a safer area?
● Are you driving less?
● Have you updated your security?
Updating these details can often lower your risk profile, helping to offset economic increases.
The Bottom Line Increases are a fact of economic life. But ensuring you are with an insurer who prices fairly and delivers on their promises? That’s a choice.
Let’s review your portfolio.
Let’s chat. www.first4men.co.za