It has been noted there is a trend in southern Africa of manufacturers choosing to repair machinery instead of regularly replacing it. We asked Anesh Govender, head of claims procurement at Old Mutual Insure about the insurance implications of this trend.
Q: What do you believe are some of the factors influencing manufacturers to repair instead of replacing their equipment?
A: There are many drivers and factors contributing to repair being a preferred choice.
- Technological improvements in repair techniques mean parts or components can be reliably repaired to quality specifications. These include examples like glass chip repair methodology, Flatliner equipment for repairing vehicle panels and plastic repair kits for plastic panels.
- Repair work is proving to bring down costs as opposed to replacing. The cost of replacement parts are very expensive and in most cases susceptible to the rand/dollar exchange rates and input inflation.
Q: What are some of the insurance risks of repairing instead of replacing?
A: From an insurance perspective the quality of the repair is paramount as you will be at risk of additional costs in the event of failure.
Q: How does repairing instead of replacing affect insurance premiums?
A: Over time repairs have proven to be more cost-effective and therefore keep costs down. This translates to lower premiums for policyholders.
Q: In the long run, how can it save manufacturers money to repair rather than replace?
A: Unless manufacturers find ways of bringing down the cost of production and have efficiencies in the manufacturing process, such that parts process are ultimately cheaper, repair will continue to be a more cost effective solution. The creation of alternative and grey goods produced at a fraction of the cost of OEM is already in place.
Q: How has the trend of repairing instead of replacing in the manufacturing industry affected the insurance industry?
A: Insurers have opted to use repair models on various commodities, most specifically glass and motor body repairs. The increased repair ratio has resulted in significant cost savings and has a benefit in that service providers are making more margins from labour and time than the margin on replacement parts. It is thus a mutually beneficial proposition in that it saves costs and enhances revenue streams for service providers.
Q: What’s the worst case scenario for the manufacturer who consistently chooses to repair instead of replacing old machinery?
A: The biggest risk is complete failure of equipment due to wear and tear. If the quality of the repairs are substandard or not up to quality expectations it raises the risk of component failure and ultimately complete breakdown.
About Old Mutual Insure
Old Mutual Insure is the oldest short-term insurer in South Africa with a history that dates back more than 180 years. The company partners with brokers to offer an extensive range of insurance products and solutions to fulfil personal, commercial and corporate needs. It also provides insurance products for the agriculture, engineering and marine sectors.