Grey import: insurer sees red

If you own a “grey import” motor vehicle and have insured it, make sure your insurer knows it’s a grey import or you may be in for a nasty surprise when you try to claim.

Grey-import vehicles are new or used vehicles and motorcycles legally imported through channels other than the manufacturer’s official distribution channels. They are sometimes referred to as “parallel imports”.

The office of the Ombudsman for Short-term Insurance, Dennis Jooste, recently dealt with a case involving a grey-import Lexus LS400.

After what appeared to be minor damage to the insured’s car, the insurer declared the vehicle a write-off, given the high cost of repairs – owing to the fact that the vehicle was a grey import. The bulk of the cost of repairs related to the importation of spare parts.

The insurer also rejected the claim because the insured had not disclosed that the vehicle was a grey import. The insurer argued that it would not have accepted the risk had this fact been disclosed.

“Write-off” is generally defined as an instance when repair is not economically viable for the insurer, Peter Nkhuna, senior assistant ombudsman, says.

The write-off percentage is usually about 70 percent of the value of the vehicle. So if the cost to repair your car exceeds the write-off percentage, your insurer will opt to pay you out a settlement value.

In the case of the Lexus, the ombudsman’s office recommended that the insurer settle the claim – on the basis of the cost of spare parts and labour – as this would result in a fair outcome for both parties.

The ombudsman also asked the owner to get a quote for the cost of repairs or to quantify the loss.

The owner got a quote for R62 000 on the basis of which the insurer wrote off the vehicle, making deductions for the salvage, which the owner kept. In other words, the owner was paid out a settlement value, based on write-off less salvage, and got to keep the car.

Damaged property that your insurer replaces or for which you successfully claim is known as “salvage” and becomes the property of the insurer. Since the insurer is effectively absorbing the loss, it has rights to the damaged property that it has covered and can legally sell this property to defray costs. Sometimes the insurer will sell the salvage back to you.

The basis of settlement values will vary from policy to policy, Nkhuna says. “It depends on the terms and conditions of your policy. Some insurers work on trade value, some work on market value, some go on retail value and others use sum insured. But most work on the market value,” Nkhuna says.

“Market value is the difference between the average trade value and the average retail value.” (The values are determined by the TransUnion Auto Dealers Guide).

To work out the market value of your car, add the average trade value and average retail valued and divide by two. So, for example, if your car has a trade value of R44 000 and a retail value of R56 000, the market value would be R50 000. If this car was in an accident and the cost to repair it was R36 000 – which is more than 70 percent of the market value – the insurer could write it off.