When it comes to car insurance there are so many things one need to know and consider, very often we do not think of the consequences and responsibilities that come with driving a car. Something that we may not often think about is transporting passengers – if you do so at any time you are at risk of incurring passenger liability claims.
When we think of passenger vehicles we think of taxis or minibuses transporting paying passengers and yes, they must all have passenger liability insurance. There are special insurance policies for this type of transport that will include passenger liability cover; the same goes for busses.
But what happens if you are always transporting your child’s netball team to and from games in your private car? You are opening yourself up to passenger liability claims and you
should immediately discuss this with your car insurance company. You can take out passenger liability cover in the form of an extension to your existing policy.
The amendments to the Road Accident Fund that came into effect in 2008 abolished the passenger’s right to claim against the driver of the vehicle that caused the accident. The cost of passenger liability should actually reduce considerably. This is still early days for the new legislation, rather contact your insurance company if you carry any passengers on a regular basis and make sure you are covered.
Pay as you drive is a new alternative type of car insurance offered in South Africa and it functions differently from “normal” car insurance as we know it. The basic operational details are as follows:
Your car insurance premium is divided into two different parts. The first part is a fixed premium including a tracking device as stipulated by the insurance company. The fixed part of your premium will further be based on the normal factors used by the insurance industry to calculate an individual premium namely: your age, gender, risk rating of the area where you live, type and age of the car, additional accessories you wich to insure and where you park the car at night.
The variable (adjustable) part of the premium is based on the actual kilometres you drive. Currently, if you travel less than 417 kilometers a month, you will not pay the variable premium, you will only pay the fixed part of the premium. A cent per kilometre insurance costs is also calculated for each individual, according to insurance factors. Your total insurance will be the kilometres you drive monthly, multiplied by your rate per kilometre added to the fixed part of your insurance cover. The maximum limit that you will be charged for is currently 3200 kilometers per month, thereafter you do not pay for additional kilometres travelled.
Business users will pay the same rate and another benefit is that you get the tracking device at a discounted monthly rate. This device also allows you to keep track of your mileage with an online logbook.
The words risk, peril and hazard are often used in short term insurance, sometimes indicating that they have an identical meaning. This is not so. A peril refers to the actual source (or cause) of a loss. Examples of perils that could be involved in car insurance are: fire, explosion, storm, hail, collision, theft.
Perils must be insurable and in a car insurance policy it will clearly state which perils you are insured against. Insurable perils will always be fortuitous and not planned. For example a fire can be started by lightning but arson is a deliberate act and therefore not insurable. Insurance policies will also state the perils that are not covered by the policy – these are called excepted perils. You will mostly find a long list of excepted perils listed in your policy document; this is done to prevent any confusion and ambiguity. Examples of excepted perils in most car insurance contracts are wars, riots, political acts, public disorder and terrorism. In car insurance it is important to note that depreciation, wear and tear, rust and mechanical or electrical breakdown are all excepted perils. These perils are also referred to as uninsurable perils.
Perils such as war and political acts are covered under SASRIA, this cover is normally added to any car insurance policy and a small contribution is paid with your insurance premium monthly.
Personal lines of insurance refer to all classes of insurance dealing with the possessions of private individuals. It refers to household content insurance, homeowners insurance and car insurance. Personal lines of insurance excludes business insurance, this is covered under “commercial lines.” Personal lines of insurance are sometimes referred to as domestic insurance.
The term personal possessions when talking specifically about car insurance refers to any personal belongings you may have in your car that is actually not part of the car. Many people assume that if you take out comprehensive car insurance it will also cover any personal possessions that are in your car. With almost all car insurance policies this is NOT the case; even car radios are not included in most comprehensive car insurance policies and you need to specify your radio or sound equipment on your policy and will pay an extra premium on that.
Some specialized insurance policies like executive cover or off-road cover may include a certain amount of personal possessions cover but rather make very sure what is covered and what not. Personal possessions can be covered as part of your household insurance but those items that you take outside the house (the items you will have in your car) must always be specified on the insurance policy.
The best solution is one of precaution so always make sure that expensive personal possessions such as laptops, cell phones, expensive clothing or other belongings are locked in the boot if not kept on your person. Also, make sure you have all risks cover on those items. If you do not have householder’s insurance there are separate insurance for portable possessions available from some insurance companies.
The Insurance Policy represents the legal agreement between the two parties to an insurance contract, namely the insured person or party, and the insurance company. It is written evidence of the existence and terms of the insurance contract.
The policy document is prepared by the insurer and includes the policy wording, proposal form, and the insurance schedule with any exclusions, endorsements and warranties. Legally an insurance policy must include the following: the person and property insured, the risks that are included in the contract, the amount that the insurance company will pay should an incident (against which insurance was obtained) occurs, the premium amount and the period of insurance.
The schedule is an important part of your contract as this describes exactly what you are insured for and must be looked at in conjunction with the policy document. Every time you make any changes to your policy, for example you change the excess payable on your car insurance, you will receive a new insurance schedule, listing the latest details.
A policy fee is the additional amount added to the basic premium and includes the cost of the issue of the policy. The onus is on the insured to read the policy and to ask questions on any issue that you do not understand.
Rules which protect short term insurance buyers became law in 2004. The rules form part of the Short-Term Insurance Act, Section 55. These Policy Protection Rules should not be confused with the rules included in the Short-Term Insurance Code of Conduct or the rules set out in the Financial Advisory and Intermediary Services Act (FAIS.)
As the name states the rules are there to protect policy holders and they are applicable to all types of short-term insurance such as car insurance, homeowners and house holders insurance. Public Liability Insurance such as Third Party Car Insurance is also included. The aim of the rules are to ensure that car insurance policies are based on sound insurance principles and practices and that the interest of all parties such as the insurance company and the insured person are protected – with particular emphasis on the protection of the insured public.
Some of provisions are:
- Policy holders must receive written proof of any insurance contract entered into.
- You must receive full details of the available complaints procedure including the contact details of the ombudsman.
- If any claim you made on your car insurance is rejected the insurer must give you written notice of the reasons.
- The insurers may not demand that you undertake a polygraph or lie detector test.
- The insurer must allow a 15 day grace period for the payment of premiums.
Please note this list does not contain all the protection rules.
When car insurance policies refer to political riot the term is actually incorrect. The term Political riot is often used to include all acts that stem from a political motivation – acts that can cause damage to property such as buildings or cars. Included under the term political riot you will find terms such as riot, strike and also public disorder. These perils cannot be covered under a “normal” car insurance policy and are listed as excepted or uninsurable perils in your car insurance contract.
Cover against the acts or risks classed as political riot in the paragraph above can be taken out with SASRIA and a small monthly premium is normally included in all car insurance policies. The premium is paid over to SASRIA by the insurance company on behalf of the insured parties. Claims against the risks insured through SASRIA must be made directly with them and not through your car insurance company. See the glossary entry for SASRIA for more details about this specific cover.
In short-term insurance such as car insurance you may come across the term pooling. Pooling is actually one of the cornerstones on which insurance is build. When you and millions of other people take out car insurance you pay for the cover you will receive against damage and losses in the form of car insurance premiums.
These premiums are usually payable on a monthly basis. All the premiums paid are collectively called the pool of insurance premiums. From this pool the losses are paid out when insured persons make claims. Another short-term insurance principle is that the contributions of many pay for the losses of few.
Short-term insurance does not operate like an investment where you expect to get your money back, and with interest as well. If you never have claims for a period of three to five years you will qualify for a cash-back bonus – if this is offered by your car insurance company.
From the pool of insurance premiums the insurance company must not only pay out claims it receives but also the running cost to keep the company in operation. There is also a certain percentage of the money in the insurance pool that needs to be kept for reserves in terms of laid down legislation. This is to ensure that there are always sufficient funds in the pool to meet claims.
A pre-payment is the term used when the insurance company makes an interim payment to the insured party, before the settlement date. If your car was written off in an accident and your insurance company agrees to pay out a part of the claim before the final settlement is made, it will be called a prepayment. This scenario is unusual in the insurance industry.
A pre-debit, on the other hand, is where the insurance company debits the insured’s account with a renewal premium, at a rate not yet accepted by the insured person or his agent, on the date the policy is due for renewal.
The preamble clause in a car insurance policy document is the introductory part (recital) that sets out the important or essential elements, underlying facts and assumptions that could be drawn from the detail in the contract. The objective of the preamble clause is to make certain that the meaning of the operative part of the contract is clear of any misunderstanding and misconceptions. It is also sometimes referred to as the recital clause.
The preamble clause helps to clarify the information that follows, explaining the purpose of the contract and sets out the objectives. The preamble clause usually has the following information:
- It names the different parties to the contract – the insured person and the company providing the insurance.
- It refers to the proposal form and declaration completed by the insured party that will form the basis of the insurance contract.
- It makes mention of the premiums that the insured party needs to pay to the insured who, in return, will indemnify the insured against defined events as stipulated in the policy.
After the preamble clause the general and specific conditions, exclusions and terms of the policy will follow.
Premiums on car insurance policies are reviewed once a year and insured clients are often upset when they find that their car insurance premiums have been increased for the coming year. They do not understand that premiums continue to increase even though they did not submit any claims for the year.
The first thing you need to do is to find out what the market value of your car is every year and then you must take the responsibility of advising your insurance company to adjust your insurance premium accordingly. Insurance companies cannot automatically reduce car market values as there are a number of factors that determine the current market value of your car. (See market value entry in this glossary for more details.)
The reasons why car insurance premiums increase yearly (taking the above out of the equation) are as follows:
- Every year there are more cars on our roads and this increase the likelihood that you may be involved in an accident. When the risk increases, car insurance premiums increase.
Ø As long as the crime rate remains high, cars are stolen and hijacked; the premiums will continue to increase.
- The inflation rate also plays its part as it increase the running costs of the insurance company.
- The cost of car repair has increased dramatically and this also plays a big role in car insurance companies’ decision when increasing rates.
Prevention of losses in car insurance will include any measures that the insured person takes to prevent damage, theft, fire, carjacking or accidents; it will include all perils that are covered in a car insurance policy. Should any of these perils result in a loss the insurance company will pay out on an insurance claim (if all conditions were met) so why take preventative measures when you pay for insurance?
First of all, if you are found to be grossly negligent the insurance company will refuse to meet your claim. Secondly, the more you claim on your car insurance the higher your premiums will become; if you claim too often the insurance company will simply decline to ensure you any further. All losses come from the insurance pool and the smaller the pool the higher the excesses and premiums will become. Insurance companies award clients who do not claim by giving them either no-claim bonuses or cash back bonuses.
Prevention of losses not only include anti-theft measures such as alarms or tracking devices, keeping your car in a locked-up garage at night – it also refers to driving safely, making sure your car is always in a roadworthy condition and many more. Insurance companies are trying to increase the security awareness of the public at large through advertising campaigns.
When we talk about pricing in car insurance terms we are basically referring to the price of the premium you pay every month for your insurance. It also refers to methods the insurance company use to arrive at the price they ask for car insurance. When car insurance companies calculate premium pricing they also use the term rating principles, or ratemaking. These principles are used to calculate what is called a fair premium (in relation to the risk.) For further details on fair premiums see the glossary entry on this topic.
When you buy an item in a shop the price will be displayed and you know what you will receive for the price. When you buy car insurance it’s a totally different scenario. You are paying in advance for cover against something that may or may not happen, this is called price inversion.
Car insurance companies use statistical data from past experience to arrive at the price they ask you for your car insurance. There is no “one price for all” as each individual’s personal circumstances, age, gender as well as the details of the car you want to insure is taken into account. You should never accept the first price you receive for car insurance, shop around and compare pricing before you decide.
Prior damage, when we talk car insurance terms, refers to any damage to a car before you either bought the car (in the case of buying a second hand car) or when you insure the car. Finding out about prior damage to a car is important not only for yourself but also for your insurance company.
When you are looking around for a second-hand car to buy also ask the owner and dealer if the car has been in an accident before. There are a number of ways to spot accident damage to a car such as a badly done overspray job or extra bends in the chassis. If you are unsure get an expert opinion by having an assessment done. You do not want to find out that your car was previously in an accident when it starts giving you trouble or during a service.
Your insurance company needs to know about any prior accident damage as this will influence their decision to insure or not, as well as the premium they will ask you. This is one of the reasons why you need to take your car for an inspection before your insurance comes into effect. The people doing the inspections on behalf of the car insurance company have been trained to look for prior accident damage. You can’t expect your insurance company to pay for repairing the damage that took place before they insured your car.
All financial institutions such as banks and insurance companies now use the word products to describe their different offerings to clients. Car insurance companies are no different and nowadays you will find a wide variety of car insurance products to meet your every need.
It may be rather confusing for the general public to deal with the different names of car insurance products as each insurance company will obviously brand his products with different names to differentiate its products from the rest of the competition. Even though insurance products will go by different names, depending on the brand, they generally include the same basic cover.
Competition is rife between car insurance companies so it is always in your best interest to shop around. All car insurers will offer the basic products namely third party only cover; third party, fire and theft cover and comprehensive car insurance. Then we have seen a number of specialist products enter the market such as off-road cover, executive cover, vintage cars and exotic cars. We have also seen products specifically designed for women and people over fifty years of age. There are also differences in the products offered for private or business car use and now also pay-as-you-drive products.
Fraud is a major problem for the short term insurance industry and it is actually estimated that some fraudulent element is present in up to 40% of short term insurance claims. The rule has therefore been implemented that an insured person needs to present the insurance company with some form of proof of ownership or proof of purchase. This proof must be presented at the time of insuring the item and also when a claim is instituted.
If you insure jewellery you will have a receipt and usually a valuation certificate as proof of ownership. In car insurance ownership is easily proven by checking the registration details of the insured car. The insurance company can do this through the registering authorities so fraud can be more easily detected as far as cars are concerned.
When taking out car insurance one of the underlying principles is that one should have an insurable interest in the item you want to insure – this is proved through ownership. You cannot, for example, insure your neighbour’s car. If that was possible you and your neighbour could both insure his car and claim when the car is stolen. This rule is what differentiates short term insurance from being a form of gambling.
Property is an object owned by someone. If you own a car it is classified as your property. As property can be damaged, lost or stolen, we take out insurance to provide protection against these risks. Property insurance policies provide specific cover, for the specified property, against damage or destruction by perils (risks) such as fire, theft, or accident. Property Damage refers to physical damage to tangible (can be seen and touched) property and also includes the loss of use of the property.
Property Damage Liability insurance will protect the insured person against legal liability claims for losses or damage to the property of third parties caused by the insured’s car during an accident. The property of the third party referred to in this case does not only include the car of the third party, but also other property belonging to him, such as his house or fence. The amount of third party liability cover will be stipulated in your insurance policy and it is of vital importance to ensure that you are sufficiently covered for third party liability claims. Also ensure that you are familiar with the terms, limits and conditions relating to property damage liability cover as laid down in your insurance policy.
The proposal form is also known as the application form for car insurance. The form contains the standard questions the insurance company needs to be answered by the person wanting to insurance his/her car. The reasons why a proposal form needs to be completed are:
- To provide the insurance company with sufficient information to assess the risk before making a decision to offer the car insurance or not. The car that needs to be insured as well as the risk profile of the person seeking car insurance is required on the proposal form.
- Taking out car insurance is entering into a legal contract and the proposal forms part of the contract.
- It contains information about past insurance experience and assists the insurance company in deciding on the premium to ask and whether the applicant qualifies for a reduce rate.
- The information will help the insurer decide what exclusions, conditions or endorsements are required.
The proposal form can be completed in writing or done verbally over the phone. In terms of the rules of Financial Introductory and Advisory Services Act (FAIS), the insurance company must keep a copy of the written or verbal proposal form on record. As an insured client you are entitled to a copy of the proposal form.
The proposer is the individual, or organization, who is seeking to take out car insurance. The person is also sometimes referred to as the prospective insured. In car insurance the insurance company does not only require details about the item it may insure, namely the car, but also about the proposer.
The very nature of car insurance – the fact that it is moveable property and is exposed to many risks – makes it imperative for the insurance company to assess the proposer as well. The driver or owner of a car’s risk profile plays a large role in the calculation of the car insurance premium. As an example people less than twenty five years of age will pay an additional premium as this age group has been proven to pose a higher risk for the insurance company.
The details provided by the proposer in the proposal form are very important as it will form the basis of a legal contract between the insurance company and the insured. The proposer has a legal right to declare all the required information accurately and truthfully and also to volunteer any additional information that may influence the risk. If it is found at any stage that material information was withheld or is incorrect, the insurance policy will be declared as null and void.
Protection is at the core of short term insurance, including car insurance. You take out car insurance to protect you against the various risks that car ownership brings. As the owner you are facing risks such as having your car stolen, hijacked; a break in or smash and grab incident. Every time you drive you run the risk of being involved in an accident in which your car can either be damaged or, in a worst case scenario, written off. Other risks you face as a car owner includes fire, storm or hail damage. You also face huge risks in the form of third party claims from others for damage caused by you to their property.
A protected risk will be one that is specifically named in your car insurance policy as an insured risk. The risks against which you are protected will depend on the level of car insurance cover you take out. If you take out third party cover only you will not enjoy any protection against other risks such as accidental damage, fire or theft.
A comprehensive car insurance policy covers all the major risks that you are exposed to but even comprehensive car insurance will have, or could have, specific risks that are excluded and for which you are not covered. It is therefore very important to familiarize yourself that the details of your car insurance cover to ensure that you are adequately insured.
In short term insurance, due to the very nature thereof, the onus of proving a loss will be on the insured party legally. It is understandable that some proof of loss must be presented to the insurance company when instituting a claim. This is necessary to prevent fraudulent claims by unscrupulous fraudsters that could cripple the short-term insurance industry.
When claiming against your car insurance policy you need to proof loss by first of all proving ownership of the car. You can do this by presenting your car registration papers which the insurance company can confirm with the authorities on the ENatis system.
Your car insurance company will also require details of the loss or accident having been reported to the South African Police Services within 24 hours after the incident. This will act as further proof of your loss. With car insurance claims where accidents are involved it is also important to obtain the details of any witnesses to the accident.
An insurance assessor will be appointed by the car insurance company to inspect the validity of the car insurance claim. Proving a loss is an integral part of any car insurance claim and having your documents in order and available will help to speed up the claim.
The word proviso is used in car insurance when referring to a special condition that must be carried out, or observed, by the insured party and is essential for the valid enforcement of the car insurance contract. A proviso is therefore a very serious condition and without the proviso being carried out the contract will not exist. You will recognize a proviso in a contract as the wording will often include the following words: “…..provided always that…..” or “…unless…” or “If you do not fulfill the following conditions, your cover will be cancelled…” and then the provisos will follow.
Let us look at a few examples of Provisos:
- “We will keep your car insured provided that you supply us with true and complete information.”
- “We will keep your car insured provided that you use all reasonable care and take all responsible precautions to prevent or minimise loss.”
- “We will not keep your car insured unless you always keep us informed of any change of address where the car insured by us is kept.”
Taking note of all provisos in your car insurance contract is of the utmost importance as neglecting them can result in your claims not being met.
Proximate Cause is another important term in short term insurance, including car insurance. Proximate Cause refers to the direct, active or dominate cause that resulted in a loss which is covered by insurance. Car insurance companies are only responsible to meet claims for losses cause by an Insured Peril. The proximate cause also indicates that the loss should have been the result of an event which was not interrupted by another event. If another, independent event is the cause of a loss, and this secondary event is not covered as an insured peril, the insurance company cannot be held liable.
Proximate cause in insurance contracts is nowadays referred to in policy documents as Insured Perils. Insured perils must be clearly defined in car insurance policies for example fire, theft, carjacking, accidental damage. Proximate cause allows insurers to issue policies for certain perils only while there are other perils or causes that they may decide to exclude. Insurance companies may also exclude certain results. The number of different proximate causes or insured perils will be taken into account when the car insurance premium is calculated.
When applying the Proximate cause there is certain rules that come into play, for example, the risk that you insure against must actually happen before you can claim. You cannot claim on your car insurance because you fear that your car may be stolen. You can only institute a claim if and when the event of theft actually took place.
Prudential Regulations refers to the statutory regulations implemented by the government to ensure that the business and financials of the organization—in this case the Insurance company—is conducted properly and according to law.
In the case of short term insurance in South Africa, which includes car insurance, the Financial Services Board is the appointed body that will scrutinize and supervise the affairs of the insurance companies to ensure that the interest of the public, including the policy holders, are protected at all times. Prudential Regulations are there to ensure the solvency of the insurance companies, to ensure that rates remain reasonable and insurance is available to the public at large.
The Short Term Insurance Act, The Financial Intermediary Services Act (FAIS) as well as the Financial Intelligence Centre Act (FICA) all contain prudential regulations which are applicable to the Insurance Industry.
Prudential Ratios are financial ratios that insurance companies themselves, as well as the regulatory bodies, monitor on a regular basis to ensure that they maintain their financial stability. Some of the ratios are: capital adequacy, loss ratio, expense ratio, reinsurance ratio and liquidity ratio. There are also reserves that have to be maintained such as sufficient reserves to cover potential claims.