Shortage of rental vehicles affecting the insurance industry
Like most businesses, car rental companies had to tighten the proverbial belt on all operational levels including fleet sizes as a result of the COVID-19 pandemic, causing severe shortages of rental vehicles.
“The knock-on effect that this is having on the insurance industry translates into a shortage of available rental cars if your vehicle needs to go in for repairs as a result of accidental damage,” explains Mandy Barrett of Aon South Africa, a leading global professional services firm and insurance broker.
The reduction in hire car fleet sizes as a result of the pandemic has been profound. According to a recent rental fleet survey conducted by Drive South Africa:
- The total vehicle rental industry fleet size has shrunk by almost half (46.4%) from pre-pandemic figures.
- Car rental sector fleet size is down by 45.8% from Dec 2019 (~59,000 vehicles) to Dec 2021 (~32,000 vehicles).
The car rental industry playbook
The COVID-19 pandemic has had far-reaching effects on many industries, but none has been as badly affected as the hospitality and entertainment/recreation sectors. As a result of lockdowns, travel restrictions and persisting reluctance to travel on the part of consumers, many car rental companies had to drastically scale down on their fleets to stay afloat and reduce overhead costs.
The hospitality and travel sectors are starting to pick up, while more motorists are back on the roads as people return to working from the office - which also means that accidents are increasing - all of which are fuelling the demand for rental vehicles. And while the car rental industry once again aims to scale back up to meet the growing demand for hire vehicles, the industry is faced with yet another hurdle in the form of a global shortage of semiconductors (microchips) in the manufacturing industry. This has led to a severe bottleneck in the car manufacturing industry, making it not only harder for car rental companies to replace their fleets, but more costly too. Semiconductor manufacturers are currently addressing the production lag, but it will take time for the industry to meet the sharp increase in demand, which is only expected to normalise during 2023.
“It’s an interesting case study on how the domino effect of a supply chain disruption can upend multiple industries. Even with a return to normal operations as the pandemic restrictions are lifted, it means that the challenges that the car rental industry faces – like many other industries - are going to persist for the foreseeable future and will require an adjustment of aspects such as service level agreements, and even planning something as seemingly simple as hiring a vehicle,” adds Mandy.
The effect on motor insurance
Car rental benefits are common in many motor insurance policies – both for individual and business covers - as it provides the insured with a means of transportation when their vehicle is in for repairs or replacement due to theft or accident. But to heap on further challenges, even the vehicle repair industry has been adversely affected by the pandemic in the form of a shortage of imported automobile spares as well as skilled labour in the field. The knock-on effect is that not only will it cost more for repairs to be done, but it will also take longer! Which also means you’re likely to need a hire car – of which there is a significant shortage - as a replacement for your regular wheels too!
“While the insurance industry is doing its utmost to meet the needs of clients in these uncertain times, the implication of the shortage means that car hire companies can no longer provide ‘guaranteed availability’ until the situation normalises, and insurers will have to prioritise the ability to secure a rental vehicle as soon as possible during the claims process,” Mandy explains.
“If you are planning on doing any non-essential repairs to your vehicle such as fixing minor dents and scratches, it would be important to first check whether a rental vehicle is available before booking your vehicle in for the repair – if you have such cover in place. With the shortage of automobile parts, it is also important to check when the parts will be available for any required repairs, and to plan your way around this in terms of how long your vehicle will be out of action. As a simple example, most insurance policies cover vehicle hire for one week to ten days, so if your vehicle for repair is still safely driveable, it would be best to wait until the parts actually arrive and then schedule your repair, versus having your vehicle standing in the shop waiting for parts to arrive, and your car hire period running out before your car is repaired,” says Mandy.
“Bottom line is talk to your professional broker come claims time so that you are better informed about the status quo. This will help you make better decisions around the repair of your vehicle, and at the same time better manage any potential inconvenience and keep you mobile while your car is in for repairs,” Mandy concludes.