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Booming used car market drives demand for niche insurance solutions

Booming used car market drives demand for niche insurance solutions
13-07-22 / Staff Writer

Booming used car market drives demand for niche insurance solutions

Johannesburg - Used car sales volumes and prices are soaring as the pandemic disrupted supply chains and caused shortages in critical auto components like semiconductors, resulting in a lack of new vehicles to meet demand.  Added to the woes, the devastating floods in KZN also had a major impact as leading auto-manufacturers lost their new vehicle stock to flood damage, while the Russia-Ukraine war continues to affect the global supply of new vehicles.  

With new vehicles in short supply, South Africans are increasingly turning to the used car market, which saw 2.31 used vehicles sold for every new vehicle as at the end of 2021, and of these used vehicles, 33% are less than two years old according to a TransUnion report.  

As a result of the used car boom, consumers are increasingly taking out mechanical warranty insurance, service & maintenance plans and credit shortfall insurance as they look to take the sting out of any major parts failures no longer covered by the manufacturer, as well as managing the out-of-pocket costs of services and shortfalls that may occur with a used vehicle.   

“When buying a used vehicle, even if relatively new, there are important risk and insurance considerations to look at, not only in terms of insuring your vehicle for the correct replacement value in the event of theft or accident, but also protecting your pocket against the unexpected costs of a major mechanical component breakdown, as well as managing your routine servicing costs,” explains Carl Moodley, Chief Underwriting & Claims Officer at GENRIC Insurance Company Limited.

GENRIC suggests the following tips for insuring your used car, and protecting your pocket against any unexpected and uninsured losses: 

Credit Shortfall Insurance

  • When you finance your vehicle through the bank, especially if over a longer repayment term or if a residual/balloon payment is part of the financing arrangement, the amount you owe on your loan often decreases at a lower rate than what the value of your vehicle depreciates. This becomes a real financial risk if your vehicle is stolen or written off as your insurer will settle the claim at the retail or market value at the time of the loss, which may result in you still owing money to the bank.  
  • GENRIC’s credit shortfall cover protects you in the event of a total loss, providing insurance cover for the shortfall between the outstanding balance on the Vehicle Finance Arrangement and the amount paid out by your underlying Comprehensive Motor Insurance policy, up to the maximum sum insured.

Insure your vehicle for theft and accidents 

  • Insure your vehicle correctly for theft and accidents. The cost of your insurance is influenced by many aspects such as the make and model, cost and availability of parts, whether you are using the vehicle for business or personal purposes, the age of the regular driver (young, inexperienced drivers typically pay more for insurance) and the security measures such as an immobiliser or tracking system and where it is parked overnight.  Always disclose all relevant information that the insurer requires including any extras (any item that is not a standard feature of the vehicle for example a sunroof, leather seats) on the vehicle as well as who the regular driver is to avoid having a claim declined or a claim pay-out being less than expected.  
  • Always insure your vehicle for its ‘retail value’ – this is the price at which the dealer will sell a used vehicle to you, versus ‘market value’ which is the value you could expect to sell the vehicle for, and is typically less than retail value. Given the big increases in used vehicle prices, it’s important to check that the insured ‘retail value’ is still appropriate given the changed market circumstances. If you need to replace your vehicle now due to theft or accident, you may well find that your vehicle costs significantly more today than what you paid for it a year or two ago. Talk to your broker and make sure you are correctly insured for the replacement value of your vehicle at current retail prices.

Get cover for major mechanical failures 

  • A new vehicle typically comes with a basic manufacturer warranty which would cover any mechanical and electrical parts for repair or replacement should they fail within a certain mileage or age – usually under 100 000km or anywhere between two to four years, manufacturer dependent.  With a used vehicle however, these warranties may already have lapsed which leaves you at risk of costly ‘out of manufacturer warranty’ breakdowns. In such circumstances, a Mechanical Warranty Insurance policy will provide cover for the repair of your car due to mechanical failures or breakdown once it falls outside of its factory warranty period. 
  • GENRIC’s mechanical warranty product covers your car for mechanical or electrical failures up to 220 000 kilometres or as long as the car is younger than 12 years old.  Over 30 components are covered such as the engine, transmission, gearbox, turbochargers, bearings, cooling system and electrical components.  For a relatively low premium starting from around R150 per month, a major mechanical breakdown such as an engine, cambelt or turbocharger failure – which can easily top R25k or more in costs – will be taken care of and you won’t have to fork out the full repair cost from your own pocket.  
  • GENRIC’s new Mechanical Warranty Plus option also includes additional value-added services over and above the mechanical warranty cover.  Traffic Fine Assist guarantees fine reductions on fines received during the cover of the policy, will proactively notify the policyholder of fines on insured vehicles by SMS, do a fine assessment to check legitimacy as well as automated submission for representation at the relevant authorities.  Vehicle License Renewal Assist will notify you via SMS and email 45 days before the expiration of your licence disc and the total amount due for renewal.  Once the policyholder pays the requisite fee, your disc will be collected on your behalf and delivered to your door via courier. No more frustrating queuing to get your renewals or fines sorted out. 
  • You also have the option with GENRIC’s Mechanical Warranty to add Car Hire to the policy, allowing you to stay mobile while your vehicle is being repaired – available in 5 or 10-day options for an additional premium.

Service and Maintenance Insurance

  • GENRIC’s DriveWize Service and Maintenance plan provides cover for the scheduled service and maintenance that your vehicle will need at certain mileage or time intervals, whichever comes first. Instead of paying for the service in one large upfront lump sum, you pay a much smaller, more affordable monthly payment which will go towards the cost of your car service. The benefit is that paying a few hundred Rand per month is a lot more affordable and manageable than having to instantly pay a large sum of a few thousand Rand, especially if it’s a major service.
  • Depending on the option you choose and the make of your vehicle, your service plan will typically cover the general service components such as air filter, engine and transmission oil, brake fluid, coolant, fuel and oil filters, pollen filter, spark plugs, sump wash and related labour, subject to the policy limits.  Under the maintenance component of your plan, you get the added protection for the replacement and repair of the wear and tear parts too!  

“By adopting a comprehensive approach to insuring your vehicle, you protect yourself from the hard financial knocks should something go wrong – whether that is an accident or theft, a major component breakdown, or a major car service which comes at a significant upfront cost,” concludes Carl.

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