POLOKWANE – While fuel prices increase monthly, your car insurance premium increases only once a year, and the vehicle loses value over time.

Readers might argue that their vehicle’s market value has depreciated over the past year, and therefore the insured amount should also drop.

Polokwane Observer spoke to financial advisor Horst Meyer.

“The value of the insured vehicle is just one aspect of the policy. Insurance companies calculate the premium using a broader formula,” Meyer says.

Total loss vs partial loss

Vehicles are covered for total loss and for partial loss.

Total loss is when the vehicle gets stolen or is written off in a crash. Then a maximum payout limit will be available.

In the case of partial loss – like hail damage, broken side mirrors or fender benders – the repairs do not get cheaper just because the car is older.

“Car repair services charge labour rates that are set at a certain amount, import replacement parts, and use headlight assemblies bought at the current exchange rate, which are influenced by inflation. So even though your car’s retail value has dropped, the cost to repair even minor damage has increased.”

Five external factors that influence your premium

Meyer explains there are five external factors that influence your premium.

1. The age of the vehicle and availability of parts

“Original replacement parts are more difficult to find as the car is getting older.”

2. Crime-related claims

“Insurance tracks claims across all the makes and year models of each vehicle. If there is a rise in thefts or hijacking in a certain range, the underwriters adjust the base risk rating to reflect the probability of this happening to the client.”

3. Environmental and regional risks

Severe hailstorms or sudden flash flooding, as well as regional risks such as the area in which the client lives and the localised accident statistics in that area, also play a role.

4. Annual recalculation of risk models

Insurance companies recalculate base risk models, minimum premiums and discount structures annually to make sure they will remain financially capable of paying for future claims.

5. The shortage of parts

The shortage of parts is not merely a source of frustration; ultimately, it costs the car owner more in insurance, as those who need a rental car for 30 days now require one for 60 days, which entails an additional premium.

“This means the premium you have to pay reflects all the probability and expected costs of settling future claims and not just the write-off value.”

How to manage your premium

Meyer concludes that the policy is built with flexible controls to optimise the risk.

You can adjust your voluntary excesses, review your vehicle mileage and condition, or review optional add-ons to keep your monthly spend aligned with your budget.