We all want to be treated fairly, but what is fair? A look in the dictionary will come up with the following: impartially and treated with respect; free from favour toward either side; to achieve a proper balance of conflicting interests. In South Africa insurance companies are highly regulated and one of the requirements by law is that insurers should set fair premiums to enable all South Africans to afford insurance as far as possible.
The insurance companies all have a code of conduct in which they promise to set fair premiums and handle claims in a fair and efficient manner. But fair means “to both sides” and unfortunately, car insurance in South Africa is high due to the high risk of accidents, car theft and carjackings.
If one look at insurance you would expect that the insurance premium should be fair in relation to the value of the property you insure. Yet you will find that you can insure your house for much less than what it will cost you to insure your car. Your house may be worth R2 million and your car R350 000. You may feel that this is unfair.
The reason for the difference in the price of insurance is that short term insurance premiums are based not only to the value of the property but more on the risk involved (and a number of other factors.) So, when you decided whether a car insurance premium is fair, compare it to other car insurance and remember… it’s much easier to steal a car than to carry away your entire house.
The Financial Advisory and Intermediary Services Act, no. 37 of 2002 was implemented in 2004. You will notice the abbreviation FAIS is regularly used. This act has brought about strict regulation that all financial businesses such as banks and insurance companies must adhere to. The main purpose of the act was to protect the public against unscrupulous financial services providers.
In terms of FAIS all short term insurance companies, which include car insurance companies, must be licensed and abide by the laid-down regulations. When you take out car insurance confirm that the company, agent or broker is FAIS compliant. You are entitled to request a copy of the FAIS license which you can verify with the Financial Services Board (FSB) at 0800 202 087 or on their website www.fsb.co.za.
The FAIS act has laid down minimum specifications for the information that the insurance company must provide you with. The details refer to your car insurance policy, premium details and details of the short-term Insurance Ombudsman. Should you not be happy with the service you receive from your car insurance company you have the right to contact the ombudsman for advice. This service is available free of charge. Before you contact the ombudsman’s office you should first try to resolve the matter with your insurance company.
In car insurance the term financier refers to the bank or other financial institution which provided the finance to someone who purchased a car. A financed car is therefore a car that was bought on credit, not paid for in cash. When you buy a car on credit the financier will insist on proof that you have taken out comprehensive car insurance. They need this proof to protect their rights to the car – the financier has the right to take the car back if payments on the loan are not made as agreed in the contract.
Should a car be written off in an accident or lost and not recovered, the finance house has the first right to the insurance pay-out. Once the car loan has been settled in full the balance will be refunded to the insured person. Unfortunately, what often transpires is that the insurance pay-out is not sufficient to repay the loan leaving a balance for which the insured person is responsible. This event can take place as the value of cars decrease faster, in many instances, than what the loan balance is reduced by.
Car insurance will pay out at the market value of the car at the time of the loss. To counteract this and ensure that you do not land up in this financial predicament you can take out what is called credit shortfall extension or gap insurance. This insurance will cover the difference between the insurance settlement amount and the balance of the loan. See the Credit Shortfall Extension Glossary entry for further details.
A first loss policy is a type of insurance cover where the insurance company and the insured agree on an amount of cover that is less than the full value of the insured property. The insured accepts responsibility for any loss exceeding the amount of cover. First loss policies will be used where the insured believe that the likelihood of a total loss is highly unlikely. This type of insurance is common for large industrial businesses and will not be used in private car insurance.
Fleet insurance is the insurance for a group of cars, commercial vehicles, ships or airplanes that are insured under cover of one policy. The fleet must belong to the same owner to be eligible for fleet insurance. There will be a minimum limit placed on the number of cars that can be insured under a fleet insurance policy, usually twenty five.
The process to determine the premium rates for fleets is called fleet rating. Within the completion of fleet rating different skills processes will be used depending on the type of fleet. The size of the fleet as well as the claims history will be used—referred to as the claims experience basis.
For small fleets the rating will largely depend on the book value of each car covered under the fleet but some adjustment for expense savings will be allowed. Larger fleets will mostly be rated through experience rating where the credibility will increase according to the size of the fleet.
The fleet owner will be responsible for keeping the insurance company informed of any changes to the fleet. Fleet insurance is a specialized insurance field and it is best to consult with a specialist car insurance broker to obtain fleet cover.
Fraud in insurance can take on different forms and cost insurance companies millions of rands each year. Fraud can be defined as intentional lying, hiding or omitting the facts by policyholders to gain an unlawful or unfair advantage. This advantage is usually in the form of obtaining payments of insurance claims that would not have been made if the true facts or all the information were known to the insurer.
Fraud in insurance companies can also be as a result of its own employees, agents and brokers lying or misrepresenting the facts for financial gain. If a policyholder wilfully commits fraud it is a criminal offence that carries severe penalties. If fraud is proven in insurance, the policy will be voided.
The onus will be on the insurance company to prove “on a balance of probabilities” in a civil case and “beyond all reasonable doubt” in a criminal case that fraud is present on a claim.
The type of insurance fraud can involve the following:
- Fabricated claims of a loss to enable the insured to claim.
- Intentionally exaggerating losses to claim more than the real value of the loss.
- Staged accidents or theft.
- Exaggerated injuries.
- Inflated medical bills.