When an Insurer has settled an insurance claim on badly damaged property, such as a car that has been written off after an accident, the remains of the car become the property of the Insurance Company. The remains are called salvage and the insurance company receives salvage rights over the property. As a point of interest, insurers that paid claims on cargoes lost at sea have the right to recover sunken treasures.
Salvage charges represents the costs incurred to recover damaged property. The insurance company is now the sole owner of the salvaged property as he has settled the insurance claim and the insured no longer has any legal interest in the salvaged property. The insurance company will sell the salvage and the amount received therefore is also referred to as salvage. This recovery is used by the insurer to off-set (reduce) part of the claim settlement it made to the insured.
Salvage is often sold to auctioneers who specialize in this type of business. They will remove the salvage and sell it at an auction. Some salvage management companies advertise the salvaged cars on the internet. Second hand spare part dealers are mostly interested in buying salvaged cars to recover any spare parts that they can still use.
SASRIA, the South African Special Risks Insurance Association came into being in 1979. After the Soweto Riots of 1976 insurers decided that they could not continue to provide cover for losses resulting from political acts. Insurance companies are members of SASRIA and also act as agents. There is also government involvement in SASRIA due to the nature of the business. SASRIA is a Non Profit Organization.
SASRIA originally only covered political riot but that was changed to include strike action, public disorder as well as non political riot action. War risks are not included. In car insurance, if you read your policy document, you will find that riots, political acts, public disorder, terrorism or any attempted such acts are excluded from your car insurance cover.
As these risks are covered by SASRIA you will find that a small additional premium is added to your insurance premium every month, when we say small we refer to something like R1.80 for the average car. The premiums are then paid over to SASRIA by the various short term insurance companies. Should you need to claim from SASRIA your insurance company will be able to provide you with the necessary information.
Any steps you take to protect your car and lower the risk of theft, hijacking or accident damage can be classified as security measures. Taking security measures is the responsibility of every car owner and can save you a lot of money in the long run, not only on insurance but also on other costs, such as having to buy a new car.
Installing security devices or systems in your car will qualify you for lower monthly car insurance premiums. Here we are looking at alarms, immobilizers and tracking devices. Please note that the device must be approved by your insurer so before installing a new device, first check with your insurance company that it is on their list of approved systems. Taking “general care” such as parking in well-lit, safe areas, keeping your car in a locked garage and always keeping your car locked are also classified as security measures.
Simply being a careful driver is a security measure that can prevent accidents and save not only your life and prevent the trauma that accompany a car accident, but also protect your no-claim bonus. Your no-claim bonus can be worth thousands of rands, its worth checking out the details.
The term self insurance does not mean no insurance. A business may find that insuring a specific risk is simply too expensive to insure commercially; it can then decide to self insure by setting up a fund from where losses will be paid. Sometimes very large risks will be insured and smaller losses carried by the business itself. The same principle can be used in personal car insurance.
The excess payable in car insurance can be seen as a form of self insurance. One should provide for excesses by setting up a savings account where you build up a reserve for emergencies and insurance excess amounts. This will be called responsible self insurance.
Another way of looking at self insurance is if you should decide to carry small claims yourself rather than claiming from your car insurance policy and thereby jeopardizing your no-claim – or cash back bonus. Accepting a higher excess is also a form of self insurance, this will save you money on your monthly premiums and the savings could then be utilized for your self insurance fund.
The extreme form of self insurance will be where a company sets up its own insurance company to handle losses of the company. This is called a captive insurance company.
When a policy holder makes a claim against an insurance policy after suffering a loss and the insurance company accepts the claim as valid, it will make a payment or repair the damaged article. For example a car damaged through a car accident can either be repaired or a monetary payment can be made. This process is called a settlement.
The word settlement is also used to describe an agreement, determination or payment reached as a result of legal action or threatened legal action. This could relate to insurance or any other legal proceedings. The word settlement indicates that it is a final agreement between the two parties, for example if the insurance company and the insured settle on a certain amount, the insured cannot claim a further amount after having accepted the settlement amount.
Settlement options are available in the case of life insurance – the insured can choose how he wants the payments made and he has various options available to him. In short term insurance the insured do not have the right to any settlement options, the insurer decides on whether a damaged item, such as a car, will be repaired or if a payment will be made as compensation for the loss or damage.
Car Insurance in South Africa is a subject of short term insurance, but what is short term insurance? The best way to describe it is to distinguish it from long term insurance. Long term insurance refers to life insurance and investment policies that will pay out when a specific event takes place, i.e. the insured reaches a certain age or dies.
Short term insurance provides cover against the risk of loss or damage of one’s possessions such as your house, car and other belongings. Short term insurance also includes personal accident, third party liability claims and medical insurance. Short term insurance usually operates on a yearly basis, each year you need to review your insurance and renew the policy should you so choose. Premiums are usually paid monthly.
Short term insurance is regulated by the Short-Term Insurance Act, no 53 or 1998 and various other acts such as the Financial Advisory and Intermediary Services Act.
Car Insurance in South Africa offers various products to suit the individual needs of car owners. The high accident rate on South African roads coupled with a high crime rate makes car insurance a necessity, although it is not compulsory. Car insurance policies have a number of conditions and exclusions and it is very important to know what your specific policy stipulates. The conditions and exclusions differ between insurance companies and also depend on the severity of the risk.
A peril is the cause, or source, of a loss or risk giving rise to a car insurance claim. Please see perils in this glossary for more details. In car insurance we basically deal with the perils of fire, storm, hail, collision, theft, carjacking and third party liability claims. Special Perils are perils which are added to the policy and are therefore become covered perils. These are perils that were excluded in the basic wording of the policy but are included as special perils and will be charged at an additional premium.
Special perils are added to an existing car insurance contract in the form of an extension. (See also extended coverage in this glossary.) Some special perils that may be applicable to car insurance policies are:
- Damage to cars caused by a tidal wave (that resulted from an earthquake or a volcanic eruption.
- Damage caused by a structure not completely roofed.
- Damage caused by retaining walls.
- Falling debris from aircraft or articles dropped from aircraft.
Exceptions on a car insurance policy are those perils or risks that are not covered under the policy. While some exceptions can be removed on payment of an additional premium there are other exceptions listed in your policy document under specific exceptions – those cannot be removed under any circumstance.
Some examples of specific exceptions that could be listed in car insurance policies are:
- Damage to your car while you are actively taking part in a riot of any kind or taking part in a civil commotion.
- If you or anyone else is driving your car without a licence or has an endorsed licence for negligent, reckless or drunken driving.
- Driving under the influence of alcohol or drugs.
- Driving a car that is not roadworthy as defined in the legislation relating to roadworthiness.
- Using your private car to earn an income such as carrying paying passengers or giving driving instruction.
- Using your car for racing or in competitions.
- Using your car in certain countries outside South Africa; the countries which are covered will be defined in your policy.
- Loss or damage covered under the Road Accident Fund.
- Someone used your car without your authorization and you refuse to lay a criminal charge against this person.
These are specific exceptions to all car insurance contracts but there may also be other exclusions – check your policy document for details.
South African law is as colourful as the people of this nation. Indeed, we have a mixed legal system with influences from the Dutch (in our civil law), English (in our common law), and indigenous law, also called African customary law. Statutory law refers to those laws promulgated by the government of the country. In short term insurance, including car insurance, you will find references to civil law and common law. The biggest influence and area of control comes from the statutory laws specifically pertaining to short term insurance.
The Short Term Insurance Act, no 53 of 1998 governs the operations of short term insurance companies that sell insurance products such as car insurance. Insurance companies must be registered in terms of the act and must operate their business according to laid down rules and regulations. The act also includes specific protection rules for insured persons.
The Financial Advisory and Intermediary Services Act, no 37 of 2002, is another statutory law which was introduced to regulate the people giving financial advice to the public, including advice on insurance products such as car insurance.
Short term insurance is in the public interest and therefore statutory laws were required to protect the interest of the public at large.
If you are involved in a car accident and your car is damaged through the negligence of another driver, you can claim from your own insurance company. However, once your insurance company has settled your claim they will endeavour to recover the full payment made to you (including your excess) from the other party. Subrogation is the name given to this process of payment recovery.
As an innocent party you have a legal right to sue the negligent driver, but in the case of subrogation that legal right now passes (is transferred) to the insurance company who can sue on your behalf. The word subrogation originates from the Latin word “subrogare” – it means to “stand in the place of.” This legal right of subrogation is included in all short term insurance contracts.
In insurance a fundamental rule is that you should be placed in the same position you were in before suffering the loss, not in a better position. You therefore cannot receive payment from your insurer and still claim from the guilty party as the rule of subrogation has now legally transferred your rights to the insurance company. If the guilty party has no insurance himself he can be sued in his personal capacity. This again, highlights the importance of having sufficient car insurance.
The sum insured is the amount of money indemnified or covered under an insurance policy. It represents the limit that an insurance company will be liable for in case of a total loss.
When dealing with the sum insured it is important to consider whether the insurer is using market, retail or replacement values for the insured items. In household content insurance the sum insured should be for the total cost of replacing all the insured items with new items – this is called “new for old.”
In car insurance this option is not available as the depreciation rate on cars are very high. You will either have the choice to insure your car for market or retail value (see market and retail value for further details.) The sum insured will be the current value of your car at the time of taking out the insurance. Here it is important to note that if your car is insured for market value your insurance premium should be adjusted annually to the new market value, which is the sum insured. Make a point of reviewing your insurance annually and confirming with your insurer that they have adjusted your insurance premium. If this is not done you will be over-insured and will gain nothing as you will only be paid the current market value as at the date of suffering a loss. In the meantime you have paid too much on your monthly insurance.
When a person completes a proposal form for short term insurance, such as car insurance, you will be asked to give full details of the item you want to insure. In the case of car insurance the item will be the car you wish to insure. An insurance company may send out a surveyor to confirm the details of items being insured – there is a saying in insurance terms that “the surveyor is the eyes and ears of the insurer.”
The surveyor will complete a survey request form listing full details of the insured item(s). In car insurance the services of a surveyor is not often used but surveyors are used in all business insurance and even when insuring private homes nowadays.
With car insurance, when taking out comprehensive insurance, you will be asked to take your car for an inspection to an authorized inspection site. Even though this inspection does not cover all the details that will be covered when a full survey is done, it provides the insurance company with sufficient details of the car it is going to insure. Today, many insurance brokers will carry out surveys on behalf of the insurance company. Any complex risk will require a qualified surveyor to carry out the survey.