MOTOR INSURANCE (3) By Tarran Dookie
In this issue on motor insurance we will consider the differences between private and commercial motor vehicle insurance, and delve into the rating factors and how premiums and terms are determined in motor insurance.
THE COMMERCIAL MOTOR POLICY
Apart from motor cycles and private-use registered vehicles, virtually all other vehicles licensed for road use would fall within the ambit of commercial motor vehicle insurance. The various types of vehicles include taxis, trucks, buses, vans, pick-ups, and vehicles used for agricultural and construction purposes.
In many respects commercial motor insurance is similar to private motor insurance. However, there are some differences. Under Section 1 (Loss or Damage) damage to the vehicle due to overloading or strain is not covered. Insurers are not prepared to cover this risk as such a risk can be avoided by due precautions being taken by the insured.
Under Section 2 (Liability to Third Parties) of the commercial policy indemnity is also provided while the insured vehicle is towing a disabled vehicle (not for hire or reward). While damage by the towed vehicle in the process of being towed is covered, it should be noted that damage to the towed vehicle itself is not covered.
Also Section 2 has certain exceptions not found on the private vehicle policy. There is an exception in respect of ‘ damage to any bridge, weighbridge or viaduct or to any road or anything beneath caused by vibration or weight of the vehicle or its load.’ This risk is avoidable and insurers are not prepared to give cover. The commercial policy also excludes death, bodily injury or damage caused or arising beyond the limits of any carriageway or thoroughfare in connection with the bringing of the load to the Motor Vehicle for loading thereon or the taking away of the load from the Motor Vehicle after unloading therefrom. This risk is more properly covered under a public liability policy. The policy also excludes death, bodily injury or damage caused by or arising out of the use of the Motor Vehicle as a tool of trade. This exception can be deleted to provide the cover or the cover can be included under a public liability policy.
Most of the additional benefits under the private motor policy (such as personal accident benefits, loss of or damage to clothing and personal effects, and damage to garage by fire) are not available under the commercial motor policy. However, the windscreen breakage extension and special perils may be included for additional premium. The motor trader’s clause is usually included without extra cost.
UNDERWRITING AND RATING FACTORS
Age and condition
Most insurers will not insure a vehicle on a comprehensive basis if it is older than a certain number of years. Replacement parts may be difficult to obtain. The vehicle may have undergone a significant amount of wear and tear. Of course, there are exceptions. A vehicle may be old but excellently maintained and may have been used infrequently.
A vehicle that is not well maintained may present a poor risk. Defects in a vehicle may lead to accidents. The law now requires mandatory inspection of all vehicles. An insurer may still want to carry out an inspection to ensure that the vehicle is in good condition since the legal inspection required by the authorities may not have been carried out recently.
Insurers normally request a valuation on the vehicle and would even suggest a valuator. A valuation helps in reducing the disputes that surround claim settlements. Some insurers have taken the initiative by offering agreed value or agreed rate of depreciation policies.
In assessing a risk an underwriter would need to know the relative cost of replacement parts for the vehicle to be insured. Another consideration would be the availability of spare parts. If these are not readily available the claims cost may be increased. For this reason some vehicles are not considered for comprehensive insurance.
Type of vehicle
In respect of private cars, type may not pose a problem. However, most insurers are reluctant to cover sports cars. Where a vehicle has been modified, an increased risk may result. In respect of commercial vehicles there is much variation of types. Certain types (e.g. taxis, extra heavy) are not covered by some insurers.
Use of vehicle
A private vehicle policy grants cover when the vehicle is used for social, domestic and pleasure purposes and for traveling to and from work. Where the insured is using his vehicle on a more regular basis (e.g. traveling officer, salesman, surveyor) a higher premium may be charged.
Theft of vehicles is of major concern to insurers. An insurer would be reluctant to grant cover where there are no security measures in place. Security measures include alarm systems, car search, and locking devices and secure parking. A condition warranting that security measures are in place may be put on the policy.
Age of drivers
Most insurers impose a premium loading where the proposer or regular driver is less than 25 years of age. Statistics show that such drivers are a greater risk than those who are older.
Inexperienced drivers (especially those with less than 2 years driving experience) would constitute a greater risk than experienced drivers. As with young drivers, inexperienced drivers are charged a higher premium.
Whether a conviction would result in a risk being declined or special terms having to be imposed depends on the type of conviction and how serious as well as how recent it is.
Information is needed on the type of losses (own damage and third party), the amounts involved, how recent, and whether the insured was at fault. Underwriters would have a negative view on serious losses of recent occurrence.
Where the proposer has had his insurance cancelled or not invited for renewal or had special terms imposed full details would have to be obtained. Indications of moral hazard may mean declinature.
DETERMINING THE PREMIUM AND TERMS
Is the proposed risk standard or not?
Where a proposed risk is standard normal rates, terms and excesses will apply. If the risk deviates from a standard risk special terms may have to be applied, higher excesses imposed or higher premiums charged.
Non-standard risks would include:
-Young or inexperienced drivers
-Drivers with incapacities or disabilities
-Left hand drive vehicles
-Unfavourable insurance or claims history
Where a risk is not standard a loading may have to be applied to the basic premium to cater for the extra risk. A loading on a young or inexperienced driver is typically used for this purpose.
Use of excesses
Standard excesses are put on policies to reduce overall claims cost and to avoid trivial claims as well as to induce care and risk consciousness on the part of the insured. Higher excesses are imposed to cater for risks that are not standard.
No claims discount entitlement
Where the proposer brings evidence of a no claims discount this is considered favourably by underwriters. Where the proposer indicates recent ownership of vehicles and yet has no discount entitlement, a reasonable explanation must be forthcoming.
A restricted driving policy is considered a better risk than an open driving policy. A discount may even be offered where this obtains. Restricted driving may also be imposed as an underwriting measure in the light of information on the risk (e.g. previous losses).
There are occasions when the underwriting decision is to decline a risk. This may be due to an extremely poor claims history or it may be indicated on underwriting guides for certain types of risks.