Information provided by the Ombudsman for short term insurance reveals that car insurance policies are frequently disputed by vehicle owners. About 67 percent of complaints registered with the ombudsman in 2007 relate to motor vehicle claims, 12 percent to homeowners insurance and 11 percent to miscellaneous cover issues.

But why do we find so many disputes? Industry experts believe these disputes are mainly attributable to the insured not fully understanding what his or her policy actually covers. Insured car owners often claim that they have not noticed the “fine print” in their contracts or have been misled into signing the policy document. In this Blog post we will investigate the nature of the fine print and offer advice to our policy holders.

What is fine print in a contract?

Fine print is seen as controversial because of its deceptive nature. Even though the exact terms of the agreement is “technically” available to the consumer, it often designed to be overlooked. Consumers are baffled by the technical and insurance jargon typically used in insurance policy handbooks and contracts, and have difficulty to understand these terms in plain English. When some of the content appears to be “hidden” inside the contract, this poses a risk to the consumer.

The unsuspecting customer, who can instantly see the basic aspects of the agreement, will, due to natural impulsive behavior, time constraints, and/or personal need, generally not bother to learn the caveats, instead focusing on the positives of the agreement.

It is important to note that “fine print” in a car insurance policy should not be seen as necessarily being in a smaller “font” or letter type, but it rather refers to a term or fact to be found elsewhere in the contract in an annexure or from a link to another page or sub-clause!

Can we blame the fine print or are policy holders at fault as well?

Policy holders are quick to blame the insurer or broker – but need to accept blame as well! We often neglect to take the time to familiarise ourselves with the content of the contract. Special attention should be given to the following aspects:

• Exclusions — certain insurance companies exclude hail damage to motor vehicles.
• Policy conditions — familiarise yourself with the insured amount on your policy (how much will the insurer pay out in the event of a claim, how many claims will be paid, etc.)
• Definitions — familiarise yourself with these (power outages, for instance, do not form part of the insured peril definition).
• Restrictions of use — in the case of motor vehicle insurance, for example, one must stipulate whether your vehicle is being used for private or business purposes.
• Security/maintenance — understand exactly what security or maintenance measures need to be in place in terms of your home and motor vehicle (failure to do so may result in a claim being repudiated).
• Liability — what protection does your insurance policy offer in terms of, for instance, passengers in your vehicle or people on your property?
• Excesses (First Amount Payable) — determine whether any deductibles, such as excess payments, are applicable as the sum you are insured for may not necessarily be the sum that is paid out.
• Car hire — find out whether this is standard on your policy as it may only be applicable in the event of theft or write-off.

How can we protect the consumer from “fine print”?

With proper education, consumers can be warned to read the fine print and to see the red flags on an offer that is too good to be true. We would like to provide the following advice to our car insurance clients:

• Never jump into signing the pre-printed agreement – the excuse of ignorance and “but I did not know what I was signing” might not be accepted.
• Find out what the insurance terms in your contract mean before you choose an insurance provider.
• Know exactly what you are getting into and what you can expect to get out before you sign the contract.
• Read all terms and exclusions thoroughly before signing.
• Ask questions to your insurer – and request the reply or confirmation in writing.
• Ask about possible scenarios – What if this happens..? What if that happens?
• Remember that you have 30 days to cancel the policy if you are not satisfied with its terms and conditions, including any exclusions you might not have been told about.
• It is NEVER too late to gain clarity – the contract can at any time be clarified and amended, and if you are not happy with the new terms, you can always opt for another insurer willing to provide this!

We will in a next Blog discuss the protection provided to the policy holder by legislation.

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Risky driving!

A car insurer has to take several factors into account when calculating the car insurance premium payable. These factors include driver factors, vehicle factors as well as the area where the owner intends to drive such vehicle most of the time. The car insurer will seek to determine how these factors will influence the risk to vehicle loss or vehicle damage.

Why do we say that the area is important? Insurers can use accident data and crime statistics to determine what the risks are to the specific vehicle to be insured. In the same way that property prices differ from area to area, the risks to vehicle damage or loss may differ. Accident data will reveal that many more accidents occur in the heavily vehicle populated cities than in towns and rural areas. Crime statistics will also confirm that the risks of hijacking, vehicle theft and smash-and –gab are much greater in our cities than in smaller towns! It is only reasonable to expect that the greater the risk of vehicle damage/ loss, the higher the insurance premium payable.

But why is this important for the insured client? Apart from determining the premium payable, the client will have to ensure that he abides by the stipulation in his policy contract to disclose any changes in the risk status. This means that in the event of a change in regular driver of the vehicle or risk area, the insurer has to be informed and a new premium calculated. Failure to do so will constitute a serious breach of contract and the insurer could reject his claim!

I would like to provide an example from a decision by the Ombudsman:

Facts:

The Insured owned five vehicles, all of which were insured and it was noted on the information given that the risk area was Durban, where the Insured resided. A Toyota Conquest was regularly used by the Insured’s daughter, and in April 2005 was taken with her when she moved to Johannesburg to attend university. The Insured did not advise the Insurer of the change in risk profile, and when a claim was lodged five months later, it was rejected. The Insured was adamant that there was no obligation on him to have advised the change in risk area as this requirement was never brought to his attention at any stage.

Ombudsman’s Response

The Ombudsman (subject to critical comment from the Insured), advised the Insured that the Insurer’s decision was correct and gave the relevant explanation in support of the rejection of the claim.

[Source: Ombudsman's Briefcase Issue No. 02/2006]

This Decision should raise alarm bells with many insured vehicle owners. This is a scenario that often plays out with our young drivers. Parents buy a vehicle for a child on the platteland or small town, insures the vehicle correctly in the name of the young driver and then allows the child to take the vehicle to the city where the child studies or works for 3 years or more.

Failure to disclose to and notify the insurer of such a change in the risk area is a breach of contract and will entitle the insurer to reject a claim by the insured client. We are not referring to short term changes such as business trips, vacation etc, but rather a prolonged change in risk area where the vehicle is to be driven.

We need to emphasize the importance of communication between the client and his insurer. Car insurance should not be seen as a once-off event – but rather as a continuous relationship between parties which needs adjustment and fine-tuning as circumstances change!!

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In most developed countries it is law to have your car insured. In South Africa this is not a requirement – and it is with a sense of fear that you ask a friend who has been in an accident “Do you have car insurance?” I have recently been called to assist a friend at an accident scene – and neither he nor the other party were insured!

I have come across some interesting international data on car insurance and I would like to share a few of these facts:

• According to 11News, in the state of Texas it is estimated that 15 percent of drivers are uninsured.
• A suburb of Bradford in the UK has been named as the ‘uninsured driving capital of Britain’ with nearly half the motorists there driving illegally without cover.
• It appears that the number of uninsured drivers have soared as a result of the recession, with vehicle owners trying to cut expenses and seeing insurance as “a bit of a luxury”.
• Vehicle owners are cutting corners on motoring costs by failing to renew their car insurance.
• Regionally, London has 1 in 8 cars (13 per cent) in the capital flagged as being driven illegally because they were uninsured.
• In the UK over 232,000 people were convicted for driving uninsured last year – one conviction every three minutes.
• Three people every hour are injured and three people every week are killed by uninsured drivers across the UK.

From 2011 the UK Government will be tightening up car insurance rules by introducing so-called ‘continuous insurance enforcement’, which means that cars must be continuously insured even if they aren’t being used. Traffic Authorities are using automatic number plate recognition technology to identify uninsured drivers. If pulled over without car insurance, the owner risk having the car confiscated, is likely to be crushed and the owner will be prosecuted.

In South Africa it should be so much more important to have your vehicle insured. Industry experts however believe that less than 30 percent of the vehicles on South African roads are insured! Car insurance should not be a luxury, or something forced upon the vehicle owner by legislation – but should be a necessity! How many reasons do you need to convince you of the importance of car insurance?

The Arrive Alive website has information on the death toll on our roads and the number of fatal accidents in a section on Accident Statistics. These are only the data on “fatal accidents” and there are many more accidents with damage to only the vehicle!

We have also recently discussed on this Blog the recently released Crime Statistics for 2009. View this section to find statistics on vehicle theft, hijackings, smash-and –grab etc.

These numbers should provide more than enough motivation to change the mindset of vehicle owners from “an unfortunate expense” to “a matter of urgency and a necessity before going on the road”!

We should perhaps also consider another important “downside” to not having car insurance as a requirement by law. Vehicle owners without car insurance might tend to have their vehicles repaired by the inexpensive backyard mechanics and panel beaters. In a country where we have so many non-roadworthy vehicles this could pose a significant threat to the safety of other road users!!

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We have discussed the FACT that some insurers regard women drivers as safer drivers and are willing to allow them a reduced premium for car insurance. But can they park – and more specifically perform parallel parking?

A UK insurance company has found that women are far more scared of parallel parking in public than men. The survey questioned both men and women on their fears and emotional well-being when having to park in public with others observing their driving skills!

According to the survey, the chances are the driver breaking out in a self-conscious sweat at the wheel will be a woman. They are particularly prone to becoming flustered when parallel parking – reversing a car into a tight kerbside space.

Three-quarters of women drivers admitted that backing into a space is sometimes too tricky even when there really is enough room. More than one in five admits they are hopeless under any circumstances and that compares to only nine percent of men.

But how many drivers were surveyed?

The survey of 4200 drivers – 1428 men and 2772 women – by motor insurer elephant.co.uk supported the adage that parking is a masculine strength and that women might not be as spatially aware as men.

Seventy-five percent of women say parking was more difficult when being watched; only 47 percent of men conceded stage fright at the wheel. It could however be that the male pride and ego could account for so few men admitting to stage fright…

In another interesting research study by the Automobile Association in the UK found that 34 percent of drivers would fail on parallel parking if forced to retake their driving test. Perhaps the fear expressed by our female drivers is not so unfounded…

We know that women are viewed as the safer or more responsible drivers…but perhaps they might need to park in a safer spot a bit further away if they are to avoid those unnecessary car insurance claims for side-swipe or fender bender accidents while parking!!!

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Tow Trucks

Recent reports placed the focus on the violence in the vehicle recovery / tow truck industry in KZN. This is a highly competitive industry and the latest reported attack amongst tow truck operators came after a two-week turf war which forced a two-year-old company to temporarily close shop to protect its 36 employees.

Tow truck operators are often the first to respond to motor vehicle accidents – and many drivers who have been in an accident are only too happy to leave the accident scene and have their vehicles towed away. Unfortunately they are often coerced into signing documentation that they might regret later!

It important to keep in mind that Road Legislation stipulates that no vehicle may be towed away without the permission of the vehicle owner:

“(3) Subject to subsection (2), no person shall remove a vehicle involved in an accident from the scene of such accident, except for the purpose of sufficiently allowing the passage of traffic, without the permission of the owner, driver or operator of such vehicle or a person who may lawfully take possession of such vehicle.”

The following suggestions will assist the motorist:

• If you are an AA member, contact the AA to arrange the tow. The AA uses only certain towing companies that comply with a code of conduct and service levels. You also have recourse if something goes wrong.
• Only use the services of the first SATRA or UTASA member to arrive at the scene of an accident. You have the right to choose to use a SATRA or UTASA member, who is bound by a contractually enforceable code of conduct, and protects you, the consumer, from being charged above market related rates.
• If your vehicle is insured, contact your insurer or broker and ask for information on the procedure to follow – have this available in your vehicle at all times.
• If you have car insurance cover that includes towing charges, call the emergency towing assistance number (usually on a sticker provided by the insurance company).
• The roadside assistance services provided by motor manufacturers and cellular service providers inevitably come at an extra cost so if you buy a new car or cell phone contract and roadside assistance forms part of the deal, make sure you are not paying extra for it if you already have this service through someone else.
• If you make use of a roadside assistance product. Make sure you know your rights: in almost all cases you or your insurer will be liable to pay the costs of towing an accident-damaged vehicle.
• Make sure that the accident-damaged vehicle is delivered to a repairer approved by your insurer or, if you are not insured, make sure to collect your vehicle as soon as possible to prevent the accrual of storage charges.
• When dealing with recovery companies, always establish the amount to be charged for all aspects including towing, salvage and storage fees. Always agree on towing charges before your vehicle is towed or you might be in for an unpleasant surprise.
• Get as much information about the tow operator as possible before you agree to the recovery – name of company, driver, and registration of tow truck, physical address and phone number (preferably not a cell phone).
• Always agree on towing charges before your vehicle is towed or you might be in for an unpleasant surprise.
• Do not sign anything. If the tow operator insists, make sure that it is ONLY an authorization to tow the vehicle.
• Remove all valuables from the motor vehicle before it is towed away for repairs.

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