Bad weather conditions have been the cause of many accidents on South African roads and will unfortunately continue to do so; unless we change our driving habits. Car Insurance companies know to expect an increase in the number of claims after every bad storm. There are many things that you can do to protect yourself from being involved in a car accident whilst driving in bad weather. Here are a few pointers:
- Drivers need to adapt their driving during bad weather; taking an advanced driving course is a good idea.
- Make sure that your car is always one hundred percent roadworthy. Driving with lights and wiper blades not working, worn tyres or break pads is an accident looking for a place to happen (even in good driving conditions.) Your insurance company will refuse to pay any claim if your car was not roadworthy.
- Before taking a long trip check the weather conditions on the way.
- Slow down and increase your following distance.
When you are caught in severe bad weather and visibility is reduced, look for a safe place to park and wait for the storm to pass.
- Stay calm, it’s better to be late for that meeting than never to arrive at all.
Turn on dipped main beams and fog lights.
- Be very aware of other drivers that may not be as cautious as you are.
- Make sure you always travel with your cell phone and have emergency numbers available.
The best advice is to simply stay off the roads during bad conditions, if at all possible.
The Road Accident Fund Act of 1996 makes provision for claims in the event of death or bodily injuries to third parties resulting from road accidents. Every motorist contributes to the fund as a levy is paid on fuel in South Africa to provide for the fund.
No damage to the property of the third party can be claimed from the Road Accident Fund. The implication is that if you are the guilty party in an accident you will be liable for damage not covered by the road accident fund.
Balance of Third Party insurance is the name used in South Africa for this type of car insurance and will cover:
- Any claims for injury to passengers that is not covered in terms of the Road Accident Act of 1996.
- Claims for damage to the property of the third parties.
This insurance can be bought at insurance companies. The term “balance” is seldom used anymore and third party insurance is exactly the same thing as balance of third party insurance. Third party insurance will only pay for damage to the third party’s car, and the driver who caused the accident will be responsible for his own damage.
Third party, fire and theft policies will cover the perils of theft and fire for the insured’s car as well. Only comprehensive insurance includes cover for the damage to the insured’s car. Although not compulsory, no driver should be without the minimum car insurance cover namely balance of third party.
What does it mean when an Insurance company undertakes to indemnify you against a loss or peril for which you took out insurance cover? The basis of indemnity is one of the cornerstones of short-term insurance, including car insurance and can be described as follows:
The insurance company undertakes to restore the insured party to the same financial position he/she was in just before the loss took place. Insurance is not for financial gain, you should not be placed in a better position than before the loss took place. If your car is damaged in an accident the insurance company will undertake to repair the damage as far as this is possible, they are not going to replace your car with a new one.
Insurers have the following options of indemnity should a loss take place:
- To pay out a lump sum in cash for the proven value of the loss. This method is often used for theft, money loss or in some all risk cases.
- To replace the lost or damaged item, here we can think of glass such as car windscreens.
- To pay for the repair, such as a car after accident damage.
- By reinstating the item, such as a building after it has been destroyed by fire.
As the holder of an insurance policy, for example a car insurance policy, you will file a claim with the insurance company when your car is damaged or stolen. The amount of money that the insurance company will pay out to you is called the benefit. The benefit can either be defined as a payment made or an entitlement available in accordance with an insurance policy agreement. If your car is damaged for example, the benefit to which you are entitled will be to have the car repaired.
In the case of damage or theft the benefit will be paid to you as the beneficiary. A beneficiary can also be a third party in the case of life assurance should the insured die. You will nominate someone as the beneficiary when you take out the insurance policy.
Where the car was bought through arranged finance the bank or car financier must first be paid the full amount due to them. Should any benefit remain, this will be paid to the policy holder.
The benefit period is the length of time during which benefits will be paid to the insured for the specific loss covered. If you take out disability cover and the benefit period is six months, you will receive the benefits for only six months.
Betterment is a principle applicable in insurance where the insured party is responsible to make a contribution towards the cost of the claim because his repaired property will be in better condition after the repair than before the damage or loss took place. This additional payment has nothing to do with the excess amount payable on the claim.
One of the rules in insurance is that one should not be placed in a better position after a claim than before the claim and should this happen, the principle of betterment will apply. If the insured is financially in a better position after the settlement of the claim, due to the increase in value of the repaired asset, it is called betterment. The insurer will usually deduct the amount the insured has to pay towards the claim from their payment, making the insured responsible to settle the balance of the repair cost.
Two cases of betterment are discussed on the website of the Ombudsman for short-term insurance in South Africa. In both cases the ombudsman ruled in favour of the insured client. In the first case the insured party’s car was damaged through vandalism and paintwork needed to be prepared. Some parts of the car had to be resprayed totally in order to complete a proper repair job. The insurer deducted 25% for betterment. The ombudsman ruled that betterment should not be calculated on speculation and must be measured fairly in the marketplace. In this case the insurer could not prove betterment and had to refund the deduction to the insured client.
Blanket Insurance is a policy providing cover for more than one type of property at the same place, or one type of property at more than one location. We are dealing with a single premium that covers two or more items under the same policy. Instead of taking out separate insurance policies for each item or risk, one policy contract is entered into to cover a list of properties or risks.
An example of blanket insurance will be where a business has a number of stores in different locations and the business takes out blanket insurance to cover the risk at all their branches.
Blanket insurance can also be used to cover the risk carried for more than one person. An example here will be where a business takes out Employee Dishonesty coverage that will cover any loss caused by the dishonesty of any employee.
Blanket policies have an inherent risk that the sum insured may not be an accurate representation of the total value of the risk. The insurance company will therefore be exposed to a much bigger risk than that which is covered by the actual premium paid. Worldwide the trend is for businesses to rely less on blanket insurance, which is very expensive, and to concentrate on managing risk strategically.
Blanket Insurance is a speciality field and will not be handled by all insurers. Blanket cover for cars is called Fleet Insurance.
Clauses that help protect insurance policy holders that injure or maim a person in an auto accident. The stipends are usually capped at pre determined fixed amounts when the insurance policy is written.
When you buy a car and pay R250 000 for it the book value will be R250 000 at the time of purchase. A year later your car’s book value in your books may still be R250 000 but that is not the real value anymore. Depreciation needs to be deducted every year from the purchase price to obtain the real book value of an asset such as a car. In the early years after having bought a new car the depreciation rate is at its highest.
The rate of depreciation on used cars has increased considerably during the past few years when new car prices started to stabilize and even come down. That was not good news for the second hand car market. Anyone would rather buy a new car if you can afford it and the car dealers were offering lower prices on trade-ins.
To establish the current book value of your car you need to contact a reputable car dealer. Request your insurance company to reduce the insurance value accordingly and your insurance payment will come down.
Many people think that they can improve the value of their cars by spending money on car accessories such as expensive sound systems but this does not increase the book value of your car. Car navigation systems is the one exception as they are extremely popular and people are prepared to pay a premium for a car with a navigation system.
A breach of contract can be defined as the refusal or failure to carry out duties as described in the conditions of a contract by any one of the contracting parties. When you take out car insurance you enter into a contract with the insurance company. The insurance company undertakes to provide you with cover against loss and damage as described in the policy. The amount of cover will depend on the type of car insurance policy you took out, be it comprehensive; third party, fire and theft; or third party only.
There are many conditions that you as the insured party must adhere to. As an example it is a condition that your car should always be in a roadworthy state. Another condition may be that you should install a security system such as a tracking device or immobilizer in your car. Paying your premiums on time is also a condition. If you have stated that you keep your car in a locked up garage overnight that also becomes a condition of your car insurance policy.
If you are found to be in breach of any of the terms, conditions or provisions of the policy the insurance company cannot be held liable to pay out on any claims you make. Breach of a major condition (also called a fundamental breach) will give the insurer the right to treat the contract as null and void. It is therefore very important that you familiarise yourself with all the terms and conditions of your car insurance policy.
When you take out car insurance there will always be a number of exclusions included in the policy. It is very important to familiarise yourself with the exclusions in your car policy document. One of the risks not covered by car insurance is mechanical breakdown. When you buy a new car you will receive a factory warranty that will safeguard you against this risk during the time that the warranty remains valid.
If you wish to insure your car for mechanical breakdown you will have to take out separate mechanical breakdown insurance. This special insurance cover will usually include the engine, air-conditioner, transmission, cooling system, electrical parts, fuel system, steering and gearbox. There are different options of mechanical breakdown insurance available on the market.
Another form of breakdown insurance is called roadside assistance. This is assistance for when your car breaks down, such as towing services and tyre-changes or medical assistance and it does not cover you for any mechanical repairs. Roadside assistance cover is usually included in all comprehensive car insurance policies as well as third party, fire and theft policies. It can even be an added benefit included in a cellular phone contract.
Breakdown insurance is not offered by all insurers. Ask your broker or search the internet if you are interested in this type of insurance.
An insurance broker is a specialist in his field who acts as the representative of a client looking for insurance. His role is to arrange insurance between the buyer (his client) and the insurance company. In doing this he can be dealing either directly with the insurance company or through an agent of the insurance company. He is therefore an intermediary between two parties and he enables them to enter into a contract to which he is not a principal.
The insurance broker deals with all insurance companies and he will search the market for the best product for his client, negotiate the best deal and then place the insurance. He is an independent professional, acting in the best interest of his client.
All insurance brokers must be licensed as financial services providers under the Financial Advisory and Intermediary Services Act of 2004 (FAIS.) As a consumer and insurance buyer you are entitled to request a copy of the broker’s license. The act has laid down requirements regarding information that must be disclosed to you by the insurance broker. This information include: (but is not limited to)
- Details of the policy, risk covered, benefits, premiums payable.
- Contact details of the insurance company.
- Any special conditions and exclusions.
- The claims procedure.
The term brokerage can have different meanings:
Brokerage can indicate insurance accounts handled by one agent on behalf of another agent.
Brokerage is mostly used to describe the remuneration earned by a broker. When a broker places a client’s business with an insurance company, the company will pay the broker commission for the business. Some brokers will also charge their client a fee for his service, usually referred to as a consulting or policy fee.
In most cases the commission paid to the broker is calculated as a percentage of the sum involved in the contract but it may also be a fixed tariff, depending on the agreement between the insurance company and the broker.
Brokers often specialize in certain aspects of the insurance market and if you require this type of insurance it is best to make use of the service of a broker. An example in the car insurance market will be a broker specializing in insuring vintage cars at agreed value instead of market value.
Brokerage firm is the name given to the business of one or more insurance brokers, often specialist businesses in certain market niches. Details of individual brokers or brokerage firms can be found by conducting an internet search.
Burning Cost is a calculation method used in insurance to calculate the premium taking into account previous claims. The term is used in the case of reinsurance. The insurance company arrive at the burning cost by calculating the cost of actual claims for a specific risk exposure, over a number of years and then state this as the rate per unit exposure.
The benefit of using burning cost in calculating premium is that it makes use of actual statistical data for similar risk exposure, therefore it is a more accurate method to use.
One of the many things you need to remember about car insurance in South Africa is that there is a difference between private use and business use. If you use your private car to visit clients or conduct your business, whether you are self-employed or work for an employer, you need to insure your car for business use, not private use. It is also called commercial use. Driving to and from your place of work is seen as private use, if not, we all would have to take out business insurance!
Business insurance premiums are higher than personal insurance as it is seen by the insurance companies to provide them with a greater risk. Indeed it may be true if you travel extensively for business as would be the case if you are doing delivery work or operate as a business sales representative. However, many professional people, such as medical doctors, feel this is unfair as their business travel may be limited and is usually not conducted during peak hours.
Talking to an insurance consultant may be a good idea. One company now offers car insurance to business users without the additional premium. But do not take chances; the short-term insurance ombudsman has warned that he cannot assist someone who took out inappropriate car insurance cover.