Carprehensive insurance- not protecting the insurer adequately?

The Ombudsman for Short-Term Insurance (OSTI) recently warned consumers about Carprehensive, the new car insurance policy underwritten by RMB Structured Insurance. While the short-term insurance market in South Africa may be competitive enough to offer cheap insurance, those policies, like Carprehensive, which offer premiums at well below the norm, are probably not covering you adequately.

Insurance is a balance of risk between you and the insurer. If you pay less for insurance, then the insurer takes on more risk. If insurers take on too much risk, they will run at a loss, which usually means that cheaper insurance is mitigating risk in other ways. When not charging for risk to cover it, insurers aren’t including it in the cover.

Carprehensive trade value and write off

The range of Carprehensive insurance policies promise to pay different percentages of the vehicle’s trade value if it is written off, depending on the policy. While most insurers cover the vehicle for its market or retail value, they do not cover the trade value as this is significantly lower. The trade value of the vehicle is the amount that the dealer pays to the car owner when he or she trades it in for another vehicle. This amount is low to enable the dealer to add a markup, thus the insured will not be paid out the full value of the car should it be written off.

The Carprehensive policy also only pays out in the event of total loss. That is, the policy can only be claimed on if the policyholder’s vehicle is completely destroyed in an accident or stolen (or hijacked). The Carprehensive policy is not comprehensive as it only covers damage for accidents should the damage be greater than 80% of the vehicles current trade value and exceed R40,000. This means inureds are not covered in the event of accidental damage.

Third party Carprehensive insurance

In the cases of damage caused to third parties, the Carprehensive insurance policy only pays for damage that exceeds R50,000, but is less than R250,000. This means that should the policyholder cause less than R50,000 damage to another’s property (or more than R250,000), he or she will have to pay for it him- or herself.

Carprehensive exclusions

What’s more, the Carprehensive insurance exclusions render what little cover there is almost useless as it fails to cover the driver in the event that he or she was:

-       driving off-road

-       exceeding the speed limit

-       violated any road traffic laws

-       did not replace tyres immediately after the tread wears down

As most accidents occur under any one of those conditions, the insured is, in effect, forcing all claims to be illegitimate.