Short Term Insurance: Know Thy Policy

Every year, thousands of short term insurance disputes are registered with the Ombudsman for Short Term Insurance. Motor vehicle insurance claims in particular, are the ones that are disputed most. Although the insurers do make mistakes, many of the disputes registered could have been prevented if the policy holders took the time to understand exactly what it was that they bought in the first place.

We take a look at the statistics released by the Ombudsman for Short Term Insurance and how you could reduce the odds of your motor vehicle insurance claim becoming one of these.

The statistics

67% of all the complaints registered at the office of the Ombudsman for Short Term Insurance during 2007, related to motor vehicle claims. To put this figure into perspective: The second largest number of complaints received was homeowners insurance at 12% and the third largest, miscellaneous insurance at 11%. Not that the phenomenon of motor vehicle insurance claims being a bone of contention, is new. In 2006, 65% of all complaints received were attributable to motor vehicle insurance and in 2005, 63%.

Looking purely at the percentages creates the impression that the increases were marginal. But, if you look at the actual number of complaints logged, it paints an entirely different picture: In 2005 – 3 636 of the complaints received by the Ombudsman were related to motor vehicle insurance, in 2006 it increased to 4 671 and in 2007, to 6 085. In fact, the 2007 number is close on double the number of complaints registered during the course of 2005.

A worrying trend, by any definition. Does this mean that consumers are being increasingly ‘ripped off’? The answer is no. A very large portion of the complaints received indicated that the consumers did not understand motor vehicle insurance, that they did not check the policy terms and conditions and that they wittingly or unwittingly failed to provide correct information to the insurers.

How to avoid becoming one of the statistics

The short term insurers are very transparent. They go to great pains to ensure that every last detail applicable to a policy is recorded in the policy documentation. The law requires full disclosure from insurers and they know that the onus will be upon them to prove that they were acting within the parameters of the policy agreement, should they be challenged for rejecting a claim.

To ensure that you will not be one of the many that end up at the door of the Ombudsman with a rejected motor vehicle insurance claim, you should make a point of carefully reading your entire policy document – fine print included. When you do this, pay special attention to the following points:

1. Restrictions of use: Check whether you can reasonably comply with the restrictions placed upon you by your insurer and if you can, whether this compliance will be sustainable over the longer term. Verify which uses of your motor vehicle are included and which are excluded. For instance, most insurers will not cover your vehicle if it is used for off-road, agricultural and business purposes unless you expressly include all or any of these. Also, see whether your policy will continue to remain valid if your car leaves the borders of the Republic of South Africa.

2. Liability: What does the liability portion of your insurance policy cover? Specifically look for easy to miss exclusions such as liability cover for passengers travelling in your vehicle, pedestrians who may be hurt if you have an accident and so forth.

3. Grey areas: Sometimes insurers will not cover your car against any form of risk while it is being advertised as for sale, displayed on the showroom floor of a motor dealer or is parked in a for sale lot of some description. Also check whether your car will remain covered if somebody known to you borrows the car, and then either fails to return it or becomes involved in an accident.

4. Security: Be sure to understand exactly which security measures should be in place. Brand names are often specified and unless you use those particular products, your claim is likely to be rejected.

5. Cover: The sum you insure your car for, is not necessarily the sum that will be paid. The insurer may make provision for deductions. Know what these are. If your motor vehicle was bought on credit ensure that the credit related charges and interest costs will be factored in should anything happen before your car is paid off. Don’t readily assume that it will be.

6. Car rental: Providing a rented car as a value-add, is standard with most policies. Have a look to see when this benefit is invoked and how long the benefit will be provided for – it does not necessarily mean from day one until your motor vehicle’s repair is completed. The rented car benefit may start later and end sooner than you anticipate.

Finally…

When you take out motor vehicle insurance, honesty is the best policy. Be completely truthful about your financial history, driving history, claims history, the intended use of the vehicle and where your vehicle will be kept. The insurer uses the information you provide to determine your risk profile and subsequently, your premium.

If anything had to happen to your car, and it is found that you may not have been as above board as was necessary, the insurer will have grounds to reject your claim. Even if you then register a complaint, the Ombudsman will uphold the insurer’s decision if they find that the decision to reject your claim had sufficient grounds.

A situation most of us would want to avoid.