Should my Motor Car insurance premium go down every month, as my car depreciates?

It would be great if my insurance cost me less every month but is that actually possible?

There are a few Product Providers (or Insurers) who promise to reduce your premium monthly. One says they will reduce your car motor insurance premium every month and another commits to return 100% of your funeral cover premiums after X (five or ten) years if you have not claimed.

Most rational people are sceptical about such claims, and I think rightly so. There are many very ethical companies out there who go to great lengths to provide exceptional value to the customers and these must be applauded, but there is no free lunch so caveat emptor (buyer beware).

Insurance companies like all other businesses out there have costs and these costs escalate monthly and like all other companies, insurers need to increase their prices to enable them to provide the cover and benefits you need in the face of these rising costs.

Many people do expect the cost of their car insurance to reduce because the resale value of their car depreciates - this thinking feels logical but is flawed. There are many factors that combine to determine the risk premium for a motor vehicle and the resale or replacement value is an insignificant factor. The replacement value is only significant in the event of a total loss, e.g. when your vehicle is stolen or totally destroyed in a fire or accident as it will indeed cost the insurer less to replace your vehicle as its value reduces.

However, total loss claims are in the minority; the majority of motor claims are accident related. Here, the insurer must repair and restore your vehicle to its pre-accident condition. Motor repair inflation is very significant – the cost of paint, spares, car hire, technician salaries as well as the ancillary business costs like rent, telephone, stationery, technology, etc. all go up.

The same accident that cost say, R50 000 to repair when your car was a year old and valued at R500 000 will cost about R70 000 to repair three years later when your car is only worth R350 000.

So, if it costs more to fix your car as time goes by how can I charge you less every month?

There might be exceptional circumstances where for a specific set of conditions the cost to repair might go down but in the general case it doesn’t. Reducing the cost every month isn’t feasible unless you were charged more than you should have been initially, which then allows for the premium to decrease over time.

So let’s avoid the gimmicks, look through the marketing fog and find those product providers who are transparent about their pricing and are going to still be around to honour the cover they sold you when you have a claim.