Data from fully digital platform, Naked Insurance, shows that customers aged below 28 are likely to choose a higher excess on their car insurance policies than those aged 29 to 55. The reason for this seems to be that younger insurance customers opt for a larger excess to reduce their monthly premiums.
Data from Naked’s customer pool by age group and excess as a percentage of the insured car’s value is as follows:
Says Ernest North, co-founder of Naked: “Excesses can be a source of frustration and confusion in the car insurance experience. But if you understand how the excess in your policy works, you can adjust the amount to hit a sweet spot between reducing your risks of a loss and saving money on your monthly premium. Our data suggests that younger customers often opt for a large excess to lower their monthly premium because cash flow is tighter.”
“Many older customers on the other hand, choose to reduce their excess because they have experience with owning assets, having insurance, and making claims. Among over-55s, excesses tend to be slightly higher because they usually have older, less valuable cars than those under 55.”
There is no single right or wrong choice about whether to opt for a higher or lower excess – it’s important to pick what’s right for your budget and lifestyle.
So, what is an excess?
The insurance excess is the amount of money you will contribute towards a claim. If your excess is R3,000 and your car is damaged in an accident, you will contribute R3,000 to repairs. It doesn’t matter whether the repairs cost R4,000 or R40,000 – you will pay the same excess. You will also pay an excess if you claim when your car is stolen.
“Paying an excess is a downer when you’re dealing with the stress of claiming for a damaged or stolen vehicle,” says North. “But excesses help to keep premiums lower for everyone and make insurance more affordable. They reduce the number of small claims insurers handle, which in turn reduces administrative expenses, the volume of fraudulent claims, and the costs of settling claims.”
Be aware of different kinds of excess
One of the factors that makes excesses so contentious is that they can make it difficult to compare quotes across different providers, especially since some providers don’t allow you much flexibility in adjusting their excess.
“Many traditional insurers also apply a range of additional excesses. For example, you might need to pay an additional excess if the accident happened after 10pm, the driver was younger than 25 or your policy is less than a couple of months old,” says North. “A combination of excess charges could add up to tens of thousands of rands more in costs if you have an accident. But at Naked we believe that insurance should reduce uncertainty, and that’s why we only use a flat basic excess payment, which the customer chooses.”
There are also a few that have percentage-based excesses. If your excess is 10% of your claim, you will contribute R10,000 if you have a claim of R100,000. If your claim is R10,000, you may need to pay a minimum of R3,000. “It’s important to read the fine print carefully,” says North. “Some policies are not as cheap as they seem when you factor in the extra excesses.”
On a more positive note, some minor claims, however, could have zero or no excess, depending on your insurer. For example, glass or windscreen claims have zero excess if the repair or replacement cost is less than R2,000.
Deciding on the right excess for you
The math of excesses is relatively straightforward. A higher excess amount will result in a lower monthly premium, while a lower excess amount will leave you with a higher monthly premium.
North suggests asking yourself the following questions when trying to decide what level of excess to go for:
How much money can I afford to pay towards an excess without borrowing?
Do you have some money saved for a rainy day? If you can pay for small repairs out of pocket without derailing your financial plan, then a lower premium and higher excess might make sense for you.
What monthly premium will not break the bank?
A lower excess will mean a higher monthly premium. So be sure to balance the affordability of the monthly premium with your ability to pay your excess at the claims stage.
What is my risk exposure?
If you drive less, you might be more comfortable with a higher excess. Your chances of having a bumper bashing will be lower than the average driver.
Modern digital platforms make it easier
It used to be complex and time-consuming to get and compare insurance quotes. Fully digital insurance platforms are making things simpler and more transparent. Today, you can get a final quote online in just 90 seconds, making it easy to check your insurance premium when you buy a car or renew your cover.
“The advantage of a self-service digital platform is that you can test different levels of excess and see your premium change. It’s not an indicative change like traditional insurers would give on a website, but rather a binding quote for each level of excess,” says North. “Whichever quotes you get, be sure you understand the basic and all the hidden excesses, so that you’re comparing premium costs on a like-for-like basis. In an ideal world, insurance should reduce uncertainty with no surprises when you try to claim.”