Uberrimae Fidei is the Latin term meaning Utmost Good Faith. In car insurance contracts, like in all contracts of insurance, it was accepted as a ground rule demanding that both insured and insurer must act with the utmost good faith in their dealings with one another. The principle of Uberrimae Fidei implies that both parties will not withhold any information of a material nature regarding the object of insurance and the contract itself. An example: a material fact is one that, if withheld by the insured person, could have influenced the insurer not to accept the risk.
In a landmark court case in 1985 the Appeals Court found that utmost good faith was an impractical concept as faith is either good or bad – a person cannot be more honest than honest. Since then Uberrimae Fidei was accepted to have “no particular meaning” in South African law and is seen as meaning the same as good faith (bona fides.)
This decision does not do away with the fact that any misleading information or nondisclosure of information will lead to the contract being null and void. For example, misleading the insurance company about using your car for business purposes will result in any claims being rejected. The reasonable man’s test has become the measure used to determine the level of disclosure of information when dealing with insurance contracts. See the entry for reasonable man test in this glossary for further information.
In most cases, insurance companies will refuse to pay your claim if someone used your car without your knowledge and approval and is involved in an accident. Should this happen you are required to lay a criminal charge against this person with the police within 48 hours of the accident. You may also not withdraw the charge.
Make sure that you understand the conditions and rules of your specific insurance policy. Some companies may insist that you nominate any regular drivers of your car in your policy. Such designated drivers are called named drivers and will enjoy the same cover as the main insured person. In most cases, as long as you have authorized the person to use your car, the insurance company will accept liability for accident claims.
Above all, never allow anyone without a valid car license to drive your car. If you give permission to your teenager to drive your car, the car is in effect not covered by any insurance and no claims will be paid out.
If an insurance company finds itself in a position where it does not have sufficient reserves to cover both its known and “incurred-but-not-reported- risks (IBNR,) it is said to be in a position of under-funding.
Underinsurance was also referred to under “Average”. To add to what was discussed there: underinsurance can be described as the amount of money still outstanding when the full value (monetary worth) of the policy is compared to the full extent of a loss covered. It is a condition arising from the insured person’s failure to buy sufficient insurance cover.
Your insurance contract specifies the basis of valuation of assets being insured, for example market value, retail value or full new replacement value. If you underinsure your car with 25% of its market value and the car is stolen, 25% will be deducted off your claim for underinsurance. This is called the average clause. For a description of the calculation of the average clause, please refer to “Average.”
Another way to describe underinsurance is that the declared value (for the purpose of calculating the premium) is less than the actual or true value of the assets in question. Being underinsured means that you are paying smaller premiums than you should have been paying. The insurer is therefore fully within his right to apply the average clause in this situation. It is within your own best interest to ensure that you are not underinsured.
An Underwriter is often used as an alternative term for an insurer or insurance company. The underwriter accepts responsibility for the fulfilment of an insurance contract in exchange for the premiums he receives from the insured party. These responsibilities include the acceptance of risk through losses and the offer of indemnity to the insured.
Secondly, underwriter can also refer to the company’s employee who makes the decision as to whether or not the company should accept responsibility for a particular risk. Thirdly, the underwriter can be the approved and authorized agent or broker selling insurance on behalf of the company.
The underwriter sets the premiums after having calculated the risk according to a matching risk profile. He also decides what conditions and terms will be applicable to the specific contract. The underwriter has the responsibility of protecting the company against undesirable selection of risk coverage. He will take into account physical, psychological and moral hazards when considering an applicant and the risk involved.
The underwriter has certain rights that are clearly stipulated in the policy. One such right, for example, is to take possession of any damaged property and to deal with it in a responsible manner. He also has the right of subrogation (see subrogation for more details.)
Underwriting is the process of examining risks for the purpose of insurance, deciding which risks to accept, the amounts of cover that will be given and what terms, conditions, exclusions will apply (if any), and the rate of insurance cover (the premium.) During the underwriting process applicants are classified according to their insurance profile to determine the actual premium to be charged. Uninsurable and unacceptable risks are rejected during this process. If you wish to insure your car and the insurance company find the particular risk unacceptable they have the right to refuse insurance.
The Underwriting cycle describes the regular pattern of rising profits and increasing premiums at the one end of the scale; at the other end reduced profits or losses and decreased premiums. When underwriting losses reach unacceptable levels the insurer will increase premiums and the underwriting cycle starts.
Underwriting expenses represents all the running expenses of the insurance company relating to the operation of its underwriting expenses. Underwriting income is the income of the insurance company after all claims have been settled and running costs have been deducted from the premium income. If the income is not sufficient to cover the costs and expenses an underwriting loss is the result. The loss or profit can also be called the underwriting result.
Risks that fall outside, or do not meet, the laid down guidelines as defined by the insurance company are called uninsurable risks or perils. Any loss suffered by an insured party must be the result of an unforeseen and completely sudden happening to qualify as an insurable risk. Examples in the case of car insurance are incidents such as an accident, theft by unknown burglars or robbery, hijacking or fire damage. None of these have been planned by the insured party and these are called fortuitous losses.
If your car is destroyed in a fire resulting from a bush fire, your insurance company will refund this as a valid claim. On the other hand, if you deliberately set fire to your car, in order to claim from the insurance company, your claim will be refused if the insurer can prove that the fire was deliberately started. This will be called arson and is an uninsurable risk.
Other examples of uninsurable losses are causing an accident while driving without a valid driver’s license and leaving your car unlocked, with the keys in the ignition. Another rule in short-term insurance is that you must have an insurable interest in the item you want to insure, you therefore cannot insure your neighbour’s car.
Usage in car insurance simply refers to the main purpose (or primary function) for which you use your car. It is important that the purpose be correctly identified and stipulated in your car insurance policy. If this is not done you may find your insurance claims repudiated. You may think that the purpose you use your car for is of no relevance as it is the same car you are insuring. The reason is that your car’s usage can have a major impact on the severity of the risk involved; therefore it becomes very important.
If you use your car to drive to and from work, but you do not travel during the day on behalf of your company, the usage of your car will be classed as private use. If you visit clients on a regular basis, travel for business during the day, or are self-employed your car usage will the classified as business use.
Business usage is seen by car insurance companies as higher risk and therefore you will normally pay a higher premium. Car insurance companies usually have differently branded products for private or business use, make sure that you take out the right product and compare the different offerings available in the market.