If you are among the 35 percent of South African motorists with motor insurance, have you read the terms and conditions of your policy, or are you waiting until you get involved in a crash, or have your car stolen, to find out what you are and aren’t covered for?
If you haven’t made a claim, chances are you aren’t absolutely sure what you’re in for.
On the eve of the release of the Ombudsman for Short-Term Insurance’s 2010 annual report last Friday, ombudsman Brian Martin issued a strongly worded warning to consumers not to be “fooled” into buying insurance products because they offered low premiums.
“Traditional comprehensive motor vehicle insurance cover, which has been available to motorists for a very long time, is not cheap,” he said, which is why only about 35 percent of vehicles are insured – a shocking statistic when you consider accident rates.
“New forms of insurance cover, at substantially reduced premiums ‘may not offer much protection to consumers and may give a false sense of security’,” Martin said.
He urged consumers to carefully analyse the cover on offer, assess whether it was relevant to their circumstances and decide whether they could afford the consequences of the excluded risks.
Martin singled out the Carprehensive policy, underwritten by RMB Structured Products, which is being extensively marketed on TV and in other media as “the affordable alternative”. In reality, he said, it offered “little protection” to consumers.
He said the company paid claims based on the “trade value” of a vehicle – the price a dealer would offer as a trade-in – which was significantly lower than the “retail value” of a car. “This may leave a consumer with a large shortfall in the event of total loss,” Martin said.
While Carprehensive advertised that there was no excess to pay in the event of a claim, what was not so apparent was the fact that the policy only covered the write-off of a car by accident, theft or hijacking.
“This policy does not offer any cover to a consumer for damage to the vehicle where it is not assessed as a write-off,” Martin said.
“And before a claim can be made against the insurer, the damage to the vehicle must exceed R40 000 and must be greater than 80 percent of the trade value.”
That leaves the person with this insurance plan paying for every fender bender out of their pockets.
The policy pays out third party claims only where the vehicle damage is between R50 000 and R250 000, which means the insured would have to pay third party claims of less than R50 000 and more than R250 000 themselves.
There’s also no cover for the first two months after signing up – for immediate cover, two months’ premiums must be paid upfront.
The exclusions were unusual, Martin said, and included no cover when driving off-road, exceeding the speed limit or violating traffic laws.
Martin said he was particularly concerned about the fact that a policyholder making a claim – or a passenger or witness to the incident in question – could be asked by Carprehensive to undergo a polygraph or “stress test”, which contravened the policyholder protection rules.
A better alternative to comprehensive insurance for those who could not afford it, he said, was balance of third party, fire and theft cover (about R220 a month), or third party cover only (about R61 a month).
“Consumers are urged to exercise great caution in the purchase of insurance products and only to do so after they have satisfied themselves that they are fully aware of all the potential pitfalls associated with the proposed purchase,” Martin said.
Responding, Gustavo Arroyo, the chief executive of RMB Structured Insurance, said the company considered Martin’s view to be “neither fair nor accurate”.
“We have no intention of revising a product that has been so timeous and well received,” he said. “Carprehensive covers all damage that leads to vehicle write-off.”
“Bumper-bashings and fender-benders are repaired by the insured. This is why Carprehensive premiums average one third and less of traditional comprehensive insurance.”
Arroyo said all the innovative provisions of Carprehensive were explained in “extensive detail” when a consumer applied for the cover on the phone and on the website, in the policy documentation, the accompanying plain language summary and the frequently asked questions brochure.
“No effort is spared in ensuring that clients are fully apprised of all applicable terms and conditions.
“Thereafter, applicants have a 30-day ‘free-look’ period during which to cancel for a full refund of any premiums paid.”