It is a common question: if your vehicle loses value every year, why does your motor insurance premium not always decrease as well? The simple answer is that a vehicle’s retail value is only one factor insurers consider when calculating motor insurance premiums.

Motor insurance premiums are influenced not only by what a vehicle is worth in the event of a total loss, but also by the frequency and cost of everyday claims. In many cases, the cost of repairs, replacement parts, labour, and increasingly sophisticated vehicle technology has a greater influence on premiums than depreciation alone.

Depreciation Matters, But It Is Only Part of the Story

Most Claims Are for Repairs, Not Write-Offs

Although vehicles depreciate over time, most motor insurance claims are not total losses. Industry data generally shows that the majority of claims involve partial losses, such as accident repairs, while a smaller percentage involve vehicles that are written off or stolen and not recovered.

This distinction is important because each type of claim follows a very different cost pattern.

Why Repair Costs Keep Rising

Partial loss claims continue to become more expensive each year due to several factors, including:

• Increasing vehicle parts prices
• More advanced and costly vehicle technology, including sensors, cameras, and electronics
• Rising labour and workshop costs

Modern repair costs are influenced by inflation, supply chain pressures, increasing wages, and the growing complexity of today’s vehicles. Even relatively minor damage can require costly replacement parts and recalibration work, increasing the overall cost of repairs. In South Africa, insurers and brokers continue to experience rising costs for vehicle parts, labour, and paint, placing ongoing upward pressure on motor insurance premiums.

Why Lower Vehicle Values Do Not Always Mean Lower Premiums

Although the value of a total loss claim decreases as a vehicle depreciates, these claims account for a smaller proportion of overall claims. Repair claims occur far more frequently and continue to increase in cost. As a result, the overall claims cost to insurers can continue rising even when the insured value of a vehicle has fallen.

This is why policyholders may experience a premium increase at renewal despite their vehicle being worth less than it was the previous year. Motor insurance premiums reflect the broader claims environment, and when the average cost of repairs continues to rise, insurers must account for these increases in their pricing.

In Summary

• Most claims are partial losses (approximately 75%) and continue to become more expensive.
• Fewer claims are total losses (approximately 25%) and generally decrease in value as vehicles depreciate.
• The overall result is upward pressure on motor insurance premiums driven by the increasing frequency and cost of vehicle repairs.

Understanding how motor insurance premiums are calculated can make renewal discussions more meaningful. If you would like advice on your motor insurance cover, excess structure, or ways to manage your premium more effectively, STP INTASURE can help you review the options available and find the cover best suited to your needs.