In legal terms, and referring to car insurance policy terms in particular, abandonment refers to the relinquishment or renunciation (giving up) of any interest, claim, privilege, right or possession, especially with the intent of never again resuming or reasserting the right of possession. This act of abandonment could take the form of a waiver.

A practical example is where a car is damaged beyond repair and the insurance company decides to scrap the car and make a payment to the insured for complete loss. Any rights that the owner of the car may have had on the car is waived.

Common law abandonment is described as the voluntary relinquishment of a possession by its owner with the intention of terminating his ownership, and without the intention of vesting ownership in another person. Through the abandonment clause you give up the damaged car to the insurer.

When your car is written off and the insurance company has paid you out for a total loss, you cannot claim ownership of the wreck to see if you can’t sell some parts of the remains. The insurance company now has the right to take and keep possession of the damaged property and can deal with it in any reasonable manner.

As the owner of a car, when you apply for car insurance you are requesting the insurance company to take over the responsibility to cover you for the various risks that your car is subjected to. There are various risks car insurers have to take into account—theft, accident damage, fire, hijacking, malicious damage and many more. Financially you decide that you cannot carry the risk yourself and decide to take out car insurance to protect you against the risk. The insurance company, on the other hand, will only accept to insure your car should you meet certain requirements.

These requirements can pertain to the car itself, the value, make, model, age, security systems or lack thereof. The insurance company will also investigate if you are a good risk to take on by checking your previous claims record and even your credit record. They will add certain exclusions and also have stipulations which you need to abide by. You will also need to pay a monthly premium for the insurance cover as set by the insurer.

All these requirements, exclusions, cover and premiums will be combined in a written offer of insurance. Acceptance in car insurance refers to the legal term when you absolutely and without qualification agree to the terms of the offer of insurance as made by the insurer. A contract consists of an offer and acceptance. Your acceptance will make the policy a legal contract. There is also acceptance on the part of the insurer who accepts to insure you against the risks as stipulated in the policy.

An accident is never planned—it is always sudden. To expand on the definition we can call it an unforeseen, unintended, unexpected, unplanned, fortuitous event. The insured is unable to control the event and the results can be a loss, damage, injury or even death.

A car accident can be defined as an event where the driver of a car is confronted with an unforeseen, external happening that may result in damage to the car of the driver, other cars, injuries to the driver, the driver(s) or other car(s), passengers and bystanders and cannot be traced to the driver’s state of mental or physical health before the accident.

Car accidents can be collisions between two or more cars but can also be between a car and anther object (foreign body.) The object could be anything from a tree, a wall, to an animal or people. Accident insurance is a contract to provide cover for loss suffered through an accident, also to compensate for personal injuries. There are various types of policies included in the accident insurance category such as health insurance and personal accident insurance.

Car accidents cost South Africa in the region of R38 billion each year. Motor accidents account for the biggest percentage of insurance claims. If we can reduce the accidents on our roads, insurance premiums will come down.

Accidental death can be described as the direct consequence of the following:

• An injury caused by an accident that is clearly visible on the outer part of the body, or internal body injuries as confirmed by an autopsy as the cause of death.
• An illness or body infection as a direct result of an accidental injury as described above, commencing within 30 days of suffering the injury in an accident.
• Drowning that resulted from an accident.

Another definition of accidental death is: Death caused by accident, violent, external and visible means.

Accidental Death Benefit can be added to an insurance policy as an additional benefit—it is in addition to the policy’s basic death benefit—should death result from an accident. As it is an additional benefit it is often referred to as “Double Indemnity.” Accidental death insurance cover will pay out in the event of accidental death or permanent disablement.

The benefit will be paid out as a lump sum, in the case of accidental death to a selected beneficiary. There is no medical testing required to obtain accidental death cover and it also covers all types of accidents.

There are a number of exclusions when accidental death cover will not pay such as people over the age of 75, suicide, under the influence of alcohol and drugs and while partaking in certain sports such as polo, professional football, professional diving and a number of others. (Please note this is not an exhaustive list of exclusions.) ( done added 5 nov )

The dictionary defines an accident as “an unforeseen or unexpected event, a chance, a mishap.” Accidental damage or loss happens as a result of an accident. The term accidental damage is also a description of a class of insurance – accidental damage insurance.

One of the characteristics of insurance is that the loss must be completely accidental. If the loss is not accidental it is not an insurable risk. One cannot insure against a risk that will most certainly take place sooner or later. In car insurance accidental loss is always included in comprehensive insurance. If you are involved in a car accident your insurance will pay for the repair of your car if it is established to be the result of an unforeseen accident. When you take out third party, fire and theft cover only you are not covered for accidental loss.

Damage to your car as the result of wear and tear is not an insurable risk; wear and tear is a given, it is not due to an accident. Unfortunately there are deceitful people who will stage a loss to look like an accident, just to claim money from insurance. Therefore every accidental loss is investigated by a loss assessor appointed by the insurance company to ascertain if the loss can be classified as a valid claim.

When dealing with car insurance there are specific terms used by the insurance industry to describe details relating to car insurance. One such term is accident year. This term relates to the financial year in which an accident or loss took place. When an insurance company compiles its financial year-end reports the term accident year basis is used to describe the total losses it incurred resulting from accidents during the twelve month period. This loss figure is then compared to the premiums earned during the same period. The accident year refers to the year the accident took place; it may not be the same year in which the loss was settled – the term used in such as case will be settlement year.

Accident year experience matches all accident losses (irrespective of when the losses were reported) during a specific year (usually a calendar year) with all earned premiums during that year. The losses are divided by the earned premiums and the result is called the accident year experience. This calculation is done every year and is used by the insurance company to calculate its loss reserve and is called the accident year loss ratio. The final result can only be seen once all the accident claims have been settled.

Whenever you buy or acquire anything there is a cost involved. In the Insurance business it is no different. Insurance companies have to compete against one another to obtain your business; especially in the short-term insurance market such as car insurance and householders (content) there are a number of players in a competitive market. Acquisition cost in insurance refers to the cost that relate to the acquisition of the insurance business.

Acquisition costs include the cost to gain and retain insurance business. In short term insurance a large percentage of business is obtained through intermediaries (agents and insurance brokers) and they earn commission on the business they introduce to the company. Advertising and marketing costs also form part of acquisition costs, just think of how often you hear or see an advert for car insurance. Then there is the cost of processing the new business; this will include the issuing of the policy and inspection costs (applicable in car insurance.) The cost of processing existing business, such as completing renewals, is also included in acquisition costs.

Like any other business insurance companies try to keep their costs low, one way in which they are doing this is by making use of cheaper ways to sell their insurance products, such as direct business through the internet.

These are events which take place due to natural causes—storms, earthquake, tornado’s, flooding, lightning, tsunami’s, volcanic eruptions, wildfires, can all be classified as “acts of God.” The events take place autonomously, without any form of any human interference. These events are the result of natural forces and therefore cannot be blamed on any human being as a fault.

Acts of God are also classified as things that social science simply cannot predict; a force of nature.

One can obtain insurance cover against “Acts of God.” These events are usually clearly excluded in insurance policies and one needs to pay additional cover. Sometimes “acts of God” are included in comprehensive, all-risk coverage but not in general insurance.

There is often a misconception about acts of God when it comes to personal injury and property damage; the assumption is that injury or damage resulting from an act of God carries no liability. Sometimes the underlying cause is negligence. A house built with such substandard material that it cannot withstand a typical storm will not safeguard the builder from liability. Consult with a lawyer in such instances.

It is advisable to check if your insurance includes “Acts of God”, remember this for any travel insurance.

The actual cash value of property is a calculation done by insurance companies to determine the amount of money to pay for total damages or lost property. The actual cash value calculation is used when an item is damaged beyond repair and therefore has to be replaced; or where the property is lost or stolen.

The term actual cash value represents the cost of replacing the item of property at current prices minus an allowance made for depreciation. Depreciation is the decline in an item’s monetary value due to age, general wear and tear, or obsolescence. The term “fair market value” is used interchangeably—replacement cost less depreciation.
 
When property is insured at full replacement value, no depreciation is deducted when paying a claim. This type of insurance will carry a higher premium as it has to account for inflation. Actual cash value or market value is used for car insurance.

One should review the actual cash value of your car on a yearly basis and request your insurance company to adjust your premium accordingly; if not you will be paying too much for your car insurance. The Auto Trader’s Guide will give you the best indication of your car’s current cash value.

An actuary is a professional working in the insurance industry. Actuaries specialize in the analysis, evaluation and management of statistical information. Their role is crucial to the financial success of an insurance company as they have to ensure that the insurance company remains profitable and financially stable.

An actuary achieves profitability and financial stability through:

• the setting of insurance premium prices or rates
• determining the rating methods
• continually assessing insurance trends in the market place—locally as well as internationally
• determining the amount to hold in reserves to cover possible claims—this amount is also a legal
• requirement expressed as a percentage
• determining other business and financial risks
• calculating dividends payable to shareholders
• carrying out other insurance-related statistical studies

Actuaries have a set of beliefs (philosophy) is their profession, some of these beliefs are:

• experiences in the past can be used to make reasonable future projections
• analysis must be as detailed as possibly allowed by the available information
• analysis is never based on apparent appearances without further investigation
• risk and uncertainty cannot be avoided but can be managed

Actuaries use a proven actuarial scientific method that describes how they collect, structure and analyse information, formulate assumptions and construct models in their problem solving processes.

The term adjustable policy refers to insurance policies where the actual extent of the risk cannot be calculated with reasonable accuracy in advance. It is usually applicable to goods in transit insurance. In these cases the client is charged a provisional premium and this premium is adjusted at the end of the insurance period, after reviewing the actual risk that was carried by the insurance company.

Adjustable policies are used where insurance companies cannot possibly make an accurate assumption of the risk they are going to carry, as the object of the risk is not a constant. As an example: – where an insurance company insures a car they know exactly what item they are dealing with, when they insure stock held in a business the stock levels are subject to constant change.

An adjustment premium is the term used for the additional premium charged after the retrospective experience rating is applied. Retrospective experience refers to the actual claims made during the specific period covered by the insurance. 

The following risks are also usually classified as adjustable exposures and therefore covered under an adjustable policy: sales, payroll, numbers of items held in inventory and cost of contracts.  At the time of audit these are reviewed and a premium adjustment made if necessary. This is usually done at the financial year end where the total exposure for the year can be taken into account when calculating the insurance premium.

An insurance company employs insurance adjusters or assessors whose function is to inspect the damage after a claim is made by an insured party. The adjuster will evaluate the loss and determine the amount to be paid to the insured as settlement of the claim.

The adjuster will look at the terms of the specific insurance contract of the insured and, according to the specific risk that was covered, decide what will be required to settle the claim.

An insured party who disputes the settlement amount he is being offered by the insurance company can appoint a public adjuster who will, after making his own assessment, negotiate with the insurers on behalf of the insured to see if a better settlement can be reached. He is usually compensated by receiving a percentage portion of the claim.

Car insurance adjusters/assessors must have the appropriate mechanical knowledge and trade skills. Car assessors often find that damaged cars are not economically repairable and “write off” the car. They look at the cost of parts and labour and base their decision on that.

The adjuster will use any statements from witnesses and police reports (if the police were present at the scene of the accident) to ascertain who the guilty party is. This will determine the right of the insurance company to claim against the guilty party’s insurance. (if the other driver is the guilty party.)

Claims for passenger liability must be handled with special care as many factors needs to be taken into account, i.e. where the passenger did not wear a seatbelt is can indicate negligence and reduce the damages against the insured. Also, passenger liability is covered under the Road Accident Fund to a certain extent.

Age plays a role in insurance. The insurance company can stipulate minimum ages below which it will not accept applicants. The company can also set maximum age levels above which it will not accept or renew specific insurance policies. The age requirement can relate directly to the capacity of the insurance applicant to enter into legal contract.

Persons under the age of twenty one are classed as minors in terms of common law. Marriage changes a person’s status from that of a minor to that of a major and gives the person full contractual capacity, even if he/she is under the age of twenty one. Should that person become divorced or widowed he/she maintains their full contractual capacity, even if they are still under the age of twenty one.

This legal contractual capacity however has no bearing when insurance companies look at risk when granting car insurance. Insurance companies have found that people under the age of twenty five are a very high risk and therefore most insurance companies refuse to grant car insurance to people under the age of twenty five. If they do it will be at a higher premium.

Usually you will not find a maximum age when insurance companies will refuse to insure you, here capacity is also applicable. If your drivers’ license has been withdrawn due to bad eyesight you will no longer qualify for car insurance, it has nothing to do with age, you need a valid driver’s license to obtain car insurance.

Age also plays its role when the insurance company calculates the market value of the item to insure. On the one hand the market value of an old car may be very low but replacement parts and labour cost could be very high.

An agent is a person who acts on behalf of another, in the case of insurance the agent will act on behalf of the insurance company that he represents. The insurance agent is therefore an authorized representative of the insurer. An agent must be licensed and qualified in terms of South African law to act as an intermediary between the insurance company and the proposer (the client.)

An agency contract will be drawn up to establish agreement to the legal relationship between the agent and the insurer. The agency contract will contain the authority of the agent to act on behalf of the insurance company, as well as the commission structure applicable to him. It will also stipulate which products he is allowed to sell, i.e. short term insurance such as car insurance or long term insurance such as life insurance.

We find two types of agents in the insurance business:

• Exclusive (or captive) agents who will represent only one insurance company and will sell only that company’s products. They can be salaried employees of the company or work on a commission only basis.
• Independent agents are self-employed and represent a number of insurance companies. They are compensated in the form of commission earned for any business they write on behalf of an insurance company. Independent agents are also referred to as non-exclusive agents.

Some agents are specialist in their field, for example you will find agents that specialize in car insurance.

In car insurance the accepted standard in the industry is to insure cars at the current market value of the car. To work out the market value the following equation is used:

Retail Value: Refers to the price a car dealer might be able to sell the car for.

Trade Value: Refers to the price a dealer might pay you should he buy the car from you.   

Market Value: Is halfway between the Retail and Trade Values. Market value takes into account depreciation on the value of the car. You therefore need to adjust your car insurance annually to its current market value; otherwise you will be over insured and wasting money as you will derive no benefit from being over-insured.

Agreed value policies are used where the value of your car is agreed on between you and the insurer at the time of taking out the car insurance. It is the same amount that you will be paid out in the event of a total loss such as your car being stolen or written off. It is therefore very different from market value where the value will reduce every year.

Agreed value policies are not issued by all insurance companies and is a specialized field of insurance. Examples where you will find the use of agreed value are for very high value cars, classic and collectable cars and also in the case of modified cars. It can also be used in the case of commercial vehicles such as trucks.

The company may insist on an agreed restricted mileage. Often, with agreed value policies, the premiums will be payable annually instead of monthly.

It is a criminal offence in South Africa to drink and drive and you will have a criminal record should you be found guilty of this offence. 38 261 people were arrested in South Africa in 2007 for driving under the influence of alcohol or drugs. That represents an increase of 55% from 2002.

When you have a concentration of over 0,05 gram per 100 ml blood-alcohol level or 0,24 ml per 1000 of breath-alcohol you are driving under the influence of alcohol. You can receive a maximum penalty for drunk driving of R120 000 and/or six years imprisonment. You may have your driver’s license suspended or permanently cancelled when found guilty. Breathalyzer test results have been accepted as admissible evidence in court by the Attorney General’s office.

Alcohol is not a mitigating factor in any road accident or any court action arising out of one.

When you are found guilty of driving under the influence of alcohol, drugs or medication your insurance claim will not be paid by your insurance company. If you therefore drink and drive, you are driving without insurance. Third party drivers or their insurance companies can hold you liable for their damage. Financially you will be ruined for life…what if some innocent person was killed by your actions? It’s just not worth it.

In car insurance and also household insurance, premiums are usually payable monthly in advance. The monthly premium is due on the first of each calendar month. Some Insurance companies offer Annual Premiums – in this case you will pay for a full year’s insurance in advance. The annual premium will meet the contractual liability of the insured and keep the policy in full force for the period of a year.

One of the benefits of an annual premium over a monthly premium is that once you have paid, you do not have to worry about paying insurance again for another year. However, not many people can afford the lump sum payment required for an annual insurance premium. Another benefit is that an annual premium will be offered to you at a reduced rate, you therefore save on the overall amount of insurance.

An interesting case was brought before the short-term insurance ombudsman where an insured person paid an annual premium on his car insurance. After six month the car was written off as a total loss and the insured claimed back six months insurance premiums from the insurance company. The insurer maintained that they had agreed to hold the car covered for a specific period and that the time of the loss was irrelevant. The ombudsman upheld the insurer’s view and agreed that no refund was due in this case.

An anti-theft device can refer to any security device specifically designed to reduce the likelihood of your car being stolen. The device could also assist in the recovery of the car should it be stolen – here we are referring to tracking devices.  Apart from tracking devices there are also car alarms, immobilisers and steering wheel locks. The crime statistics of the South Africa Police showed that 40 900 car and motorcycles where stolen during the year ending June 2008. In the same period 14 201 carjackings took place. There was a slight decrease in car theft but an increase in carjackings.

There are a number of benefits that arise from fitting anti-theft devices to your car. Is does act as a deterrent to thieves when they see that your car is fitted with a tracking device; it could even save your life. You will also be eligible for a discount on your insurance premium if your car is fitted with certain anti-theft devices. It is important to note that the device needs to be approved by your insurance company to qualify for a discount. So, it would be in your best interest to confirm with them before fitting a device that it is on their approved list.

In South Africa one of the reasons people take out car insurance is because of the high incidence of car theft and hijackings. Fitting approved anti-theft devices will reduce your insurance premiums and also provide you with a little extra peace of mind.

When your car has been damaged in an accident your insurance company will recommend that you use an approved repairer. This will be a business that the insurance company has investigated and agreed special rates with. The insurer has to pay for the cost of the repairs to your car and therefore they want to make sure that a proper repair job is done, protecting both their interest as well as yours – their client.

What if you want to use your own repairer? Most companies will ask you to obtain a quote for the repair, some may request two quotes. Where an insurer allows you to use a repairer of your own choice you may have to pay a penalty. The penalty may be in the form of a higher excess. Some insurance companies will only allow you to deal with an approved repairer as this is the only way they can guarantee the repair job.

The cost of car repair is extremely high and this of course has a negative effect on the price of insurance. The number of imported cars on our roads has increased dramatically and the parts need to be imported, pushing up the cost. The insurance companies have warned against the temptation to use pirate parts – it could endanger your life and if your car is still under warranty the use of pirate parts will invalidate your warranty.

Arbitration is a process that takes place when two parties who have a problem (dispute) agree to have a third person (the arbitrator) listening to their arguments and then working out a solution. The arbitrator’s role is like that of a judge and both parties must accept his decision.

It is often used to settle contractual or commercial disputes. Arbitration can be used to reach an agreement rather than using mediation or going to court. The parties can come to an agreement in advance that arbitration could be used in the case of disagreements. This will be listed in the contract between the two parties but it does not remove the right of any party to insist on litigation instead.

An arbitrator will always be an impartial party and he will decide on the amount of the claim settlement (in legal terms it is called the quantum.) The arbitrator will be an independent person or body and his decision will be binding on both parties.

In the case of insurance, such as car insurance, it will be a procedure in which the insurance company and the insured agree to settle a claim dispute by accepting a decision made by the arbitrator. However, both parties must agree to accept the process of arbitration, it cannot be enforced by one party.

Going to court can incur heavy legal expenses and adverse publicity for both parties. An arbitration order can be enforced in a court of law, unlike mediated settlements. The one “perceived” disadvantage is that there is no appeals procedure allowed but the advantages are that it is cheaper, quicker and an easier procedure to use in place of litigation.

In South Africa consumers can also contact the Ombudsman for short-term insurance and request arbitrational assistance.

An asset can be defined as anything that has a financial value. It is property or a financial commodity which can be converted to cash. Examples are buildings, personal belongings such as jewellery, equipment such as a personal computer or camera, valuable art collections or your car. In insurance terms when the policy document refers to the insured asset it means the item you have insured. When you have a house owners policy the asset you have insured will be the house you own. In car insurance the asset will be the car you insured.

When reference is made to the assets of the insurance company itself, we refer to the property it owns as well as investments and other assets. The premiums that the insurance company collect monthly from policy holders are invested in various assets as prescribed by law. The words liquid assets refer to assets that can be turned into cash quickly such as bank deposits. Fixed assets, on the other hand, are assets such as buildings. Even though it can be sold and therefore turned into cash, the transaction will take time.

Loans against assets must be deducted to establish the net value of the asset. Let’s say your car is valued as R500 000 but you owe R200 000 on it, your net value will be R300 000. But, when you insure your car, you must insure the full value of the car, that is R500 000.

You cannot insure an asset if you are not the owner of the specific asset, for example you cannot insure your neighbour’s car, but you can add your spouse and children’s assets to your insurance policy.

When you take out car insurance your most important aim is to receive cover against any loss that could arise from owning a car such as theft, carjacking, accidents and claims from third parties. But car insurance offers you much more – they offer you assistance.

When you phone your insurance company for assistance with a claim you expect superior client service from them, it is your right as a consumer and, after all, a service you pay for. Assistance provided by car insurance companies come in many forms, think of Roadside Assistance, Medical Assistance and Flat Tyre Assistance to name but a few. Most insurance companies will even offer you map assistance when you are lost on some lonely road.

Medical Assistance is an extremely important service and can save your life after a serious accident, the insurer may even go the length of airlifting you to a hospital. This service is not only available while you are driving but also at home should you need help after an incident. In times of crises we often forget that we have access to the assistance offered by our car insurance companies.

As with any insurance policy – do not automatically assume that you have a specific type of assistance, some are only available if you take out comprehensive car insurance. Always check your policy document to know exactly what cover and assistance you have available and keep the emergency telephone numbers at hand.

In South Africa you will still hear the term assurance, but less often than in the past. The term insurance refers to the provision of cover for an event that might take place. Assurance is referred to in the case of cover for an event that will definitely take place.

When referring to a life insurance policy it is one that provides cover for a specified time, for example five years. If the person’s whose life was insured passed away the insurance company will have to pay out the agreed sum to the beneficiary of the policy. If the person is still alive at the end of the term no payment is made.

Life assurance will always pay out. Here we are dealing with a combination of an investment as well as the insured sum. The policy will pay out at a certain age or at the death of the insured. The term assured life refers to the individual insured.

In short term insurance, such as car insurance, the term assurance is never used.

The average clause used in insurance terms can be described as follows: “A situation in which the insurance company accepts liability only for the same proportion of a loss as the sum insured bears to the actual value of the property as calculated at the time the loss is experienced.” It means that the insured is required to bear a proportion of any loss where assets are insured for less than their full value. The term “average clause” is applicable where a risk is under-insured.

An example will explain the implication of the average clause in car insurance:

Your car is insured for R150 000 but the actual market value at the time you have an accident is R250 000. In the accident your car is damaged and you claim R20 000. The insurance company will pay you R12 000 = (R100 000 x R20 000) / R150 000 and you will have to pay the difference of R8 000. You were 40% under-insured and therefore you accepted the risk for 40% of any loss.

From the above you can see the importance of making sure that your car, or any other property for that matter, is insured for the correct value. It is the responsibility of the client, not the insurance company to confirm their insurance values on at least an annual basis to prevent under-insurance and its nasty implications.