Insurance: You get what you pay for

You get what you pay for in insurance

Peter Atkinson, National Technical Portfolio Manager at the Financial Intermediaries Association of Southern Africa (FIA)

Beware of the fine print in insurance polices

Consumers should be wary of signing up for what are perceived to be cheaper insurance products without first reading the fine print, as they can actually prove far more costly in the long run.

According to a recent statement by the Ombudsman for Short-term Insurance, consumers should satisfy themselves, prior to inception of any contract, that the policy being offered covers their specific risk needs and not be “fooled” into purchasing an insurance product purely because it offers a lower premium.

In particular, the Ombud referred to a relatively new motor policy, noting that some insurers have introduced forms of insurance cover at what is said to be substantially reduced premiums, supposedly in an endeavour to reduce the number of uninsured vehicles on our roads. He pointed out that such products may not offer much protection to consumers, however, and may actually lead consumers into a false sense of security.

It is critical that consumers analyse the cover provided by such products very carefully and critically assess whether the cover being provided is relevant to their own circumstances and whether they are able to carry the potential consequences of excluded risks themselves.

Insurance premiums are calculated to compensate the insurer for taking on a certain amount of risk that is being transferred from the insured. Therefore, a lower premium often means that the degree of risk being transferred is correspondingly low. Unfortunately, those seeking to cut insurance premiums are typically the ones who can least afford to carry any of the risk themselves.

For example, it is important to work out how the insurer will determine the value of the vehicle at the time of a claim. There can be a significant difference between the “trade value” and the “retail value” of a motor vehicle, which may leave a consumer with a large shortfall in the event of total loss, especially if their cover only provides a percentage of the full trade value in an effort to save on premiums.

The “trade value” would represent the value that a dealer would offer as a trade-in on a motor vehicle and should be distinguished from either the market value of the vehicle, or the retail value, which would represent the value for which a vehicle would be sold by a motor vehicle dealer to an end purchaser. However, some plans do base the cover on “market” value

In what appears to be a new trend, however, some cover now extends only in the event of a complete loss of the vehicle through write off occasioned by an accident or through theft or hi-jacking. No cover is offered to a consumer for damage to the vehicle itself where the vehicle is not assessed as a write-off based, for example, on repair costs being estimated to be greater than 70% or 80% of the vehicle’s current value.

While one may be tempted to simply disregard this type of “limited” product (if one is able to discern it as such), consumers also need to be able to choose a product that suits their particular needs from the range on offer and, provided they are fully informed as to the pros and cons of the cover, to opt for what is perceived to be the best solution.

It is here that the independent intermediary can be invaluable in ensuring that the options are fully understood and that the correct decision is made.

Coutesy: FIA

Get your generators ready for winter

I guess we should make sure the generators are serviced, and ready to bail us out again in winter...

via Fin24:

Johannesburg - Eskom cannot guarantee that there will be no outages during the winter months as energy usage nears that of pre-recession levels experienced in 2007, The Times reported on Tuesday.

"We have resolved to avoid (outages), but that resolve will be tested," the power supplier's spokeswoman Hilary Joffe was quoted saying.

"I am not going to give you a guarantee that (load shedding) is going to happen, but I'm also not going to give you a guarantee that it's not.

"That's the best we can give you. It's not going to be easy," she said.

Eskom on Friday announced its goal of keeping power available this winter and avoiding rotational load shedding.

"But the system is going to be very tight for the next two years," Joffe said.

After studying weather and power usage trends, Eskom reported that 14 critical periods were expected before the end of winter. 

How the Tsunami affects the SA insurance market

Japan is some 13'500 kms away from South Africa, as the crow flies.  But that distance is negligible, when it becomes clear that we, in South Africa, are now starting to experience shortages of motor vehicle parts, following the massive earthquake and tsunami which destroyed large parts of Japan last month.

Here is a list of vehicles that insurers are currently reporting issues with:

Lexus South Africa - Alternate suppliers are available.

Toyota South Africa - Only Toyota Quantum Minibuses will be affected.

Toyota Hino - Isolated problems may occur on lesser populated models in one to two months time.

Honda South Africa - Parts are available from the European hub for at least six weeks. Other suppliers are also available.

Nissan South Africa - Isolated cases of shortage may occur for lesser populated vehicles.

Subaru South Africa - Problems are being experienced but parts are being sourced from the USA and UK.

Mitsubishi - Problems are being experienced. Expect delays.

General Motors South Africa - Problems will be experienced. Expect delays, especially on Isuzu parts.

Suzuki - Problems are being experienced as the Plant was washed away.

Daihatsu - Production of aftermarket parts resumed on 17 March 2011.  Production of parts for overseas production resumed on 21 March 2011.

Mazda - Operations were suspended at Mazda's Hiroshima and Hofu Plants but temporary production was resumed on 22 March 2011. Both Plants will focus on manufacturing replacement parts, parts for overseas production and vehicles utilising "in-process" inventories.

We really do live in a global village. An earthquake on the other side of the world leaves us with a shortage of spare parts. Which results in a delay in repair time. Which results in higher costs, for insurers, and ultimately, for you and me.

But, I guess there's not much we can do about it... except try not to have an accident if you drive one of those models.

Why your credit history is important

Can misrepresenting your credit history result in the cancellation of a short-term insurance policy? And would an insurer be within its rights to decline a claim on the basis of such misrepresentation? In the August issue of the Ombudsman’s Briefcase, the Ombudsman for Short-term Insurance publishes an interesting case study that answers these questions.

Complete disclosure the best policy
 Prospective clients are asked a number of questions when taking out a short-term insurance policy. The insurer wants information about the insured’s age, address and ‘no claims’ bonus, details of the security arrangements for the vehicle (including anti-theft devices, tracking devices and where the vehicle will be parked at night) and information about the primary use of the vehicle. And we already know that misrepresenting any of these facts will lead to problems at claims stage. But there is other information the insurer will ask for at policy inception.

In today’s case the insurance company asked the insured whether the regular driver of the vehicle “had ever been blacklisted, liquidated or sequestrated.” The insured’s response to this question was, “not that I’m aware of.” When the insured submitted a claim for damage to the motor vehicle (some three months later) the insurer determined that the insured had actually been blacklisted for a number of unpaid accounts prior to inception of the policy. The claim was rejected on the basis of non-disclosure!

Does this omission really constitute non-disclosure? The insured felt wronged and laid a complaint against her insurance company with the Ombudsman for Short Term Insurance.

Should the credit check occur pre-policy?
The complainant’s argument in this case is compelling. She felt that she hadn’t intentionally withheld information from the insurer and expressed the opinion that the insurer’s credit check could have been performed prior to policy inception rather than at claims stage. She also alleged that the insurer was unable (or not prepared) to provide her with a copy of the voice recording of the policy sale. A summary of her complaint: “The complainant was of the view that her insurer was not able to prove their allegation, should have conducted the credit check prior to granting the policy cover and by failing to do so, should therefore be made to entertain her claim in full!”

Another twist in the argument – which we quite enjoyed – was that risk of non-payment due to a poor credit history generally lies with the finance house. The insured argued that since the finance house had no trouble granting the loan (after completing a credit check), why would the insurer have a problem carrying her insurance?

Once the case reached the Ombudsman the insurer was able to produce a voice recording of the sale. The insurer provided the complainant’s policy schedule, a copy of the credit check conducted on the complainant and a copy of the voice recording of the sales conversation. “The insurer argued that had they been notified of the complainant’s credit history during the sale of the policy they would not have granted the complainant cover and would therefore, not have exposed themselves to the moral risk that the complainant represented.”

From our perspective it’s not that easy to understand how the client’s credit history impacts on a short-term monthly paid policy. If she missed a payment she wouldn’t be covered in any event.

The Ombudsman frequently rules for complainants around vehicle and drivers licence issues. Would the Ombudsman side with the complainant in this case?

Insurer’s decision upheld
The Ombudsman noted that the complainant’s credit check indicated five separate instances of bad debts written off totalling R71 201 in the 18-months prior to the inception of the policy. “It was the view of the office of the Ombudsman that it was clear that the complainant could not have been unaware of her bad credit history under the circumstances and intentionally withheld such information from the insurer during the sales conversation,” said the Ombudsman.

On advice from the insurer that they would not have accepted this risk if they had known about the insured’s debt history the Ombudsman rejected the claim and accepted the insurer’s decision to reject the claim and cancel the policy.

-- via FA News

Why children should get their own car insurance

Why children should get their own car insurance
A first car is a rite of passage for many young South Africans. However, the high accident rate in this age bracket, owing to a lack of driving experience and inability to handle high-pressure situations, means that insurance companies are often required to levy higher premiums on these drivers.

Studies have shown that young drivers between the ages of 16 and 21 are 10 times more likely to be involved in an accident than those aged between 30 and 59. Some newly qualified young drivers may be forced to pay up to three times more than an experienced driver for their car insurance.

According to Christelle Fourie, managing director of MUA Insurance Acceptances, this is a problem many parents are confronted with as they decide how best to insure their children.
"Many parents opt to simply put their children onto their own insurance policies and pay the premium for them. However, we have seen a number of cases where children who are well into their 30s are still on their parent s' policies and continue to have their premium paid," she says.


"While this is an honourable approach, the reality is that, by doing this, parents can end up impacting on their own claims history and their children are encouraged to delay taking responsibility for themselves. "It is best to let children take out their own insurance cover as soon as they acquire their first car, even if this proves to be an expensive exercise at the outset. The younger someone begins with a good claims record, the sooner they will be able to erase the additional loading charged due to age."

Fourie says that even if some parents choose to pay the premium on their children's policy, it is important to begin encouraging them to start building their own insurance records from a young age and to pay the correct risk premiums so they can start taking responsibility for the costs of running a motor vehicle.
She says if young people find the costs too high, it may be an idea to combine their motor and home policies, as most companies offer reduced car insurance premiums if the policy is accompanied by household contents insurance.

"Some insurers will also offer a premium discount if the insured chooses an additional voluntary excess, so it may be better for parents to assist their children by funding the voluntary excess during the early years of insurance, instead of placing them on their own policy."

Fourie says another method that may not keep premiums down, but can be used as a personal risk management tool by parents to minimise the likelihood of their child being involved in an accident, is to install a tracking device.

"This enables parents to monitor not only where their children's cars are at any time of the day or night, but also exactly how fast they are driving."


-- via timeslive.co.za

Need to install a Tracking System? Get Comparative quotes from SA's leading Tracking Systems companies in one place!

The worlds first flying car

How amazing is this invention? A car that flies.. or is it a planes that drives?

Either way, it's certainly going to push the limits of insurance as we know it!

Company Directors can expect claims against themselves in their personal capacity under new Companies Act

Directors and officers, charged with making difficult management decisions in the course of their work, may face heightened litigation once the new Companies Act comes into effect in later this year. Increased litigation may also cost directors millions in their personal capacity.

Key provisions in the new Act will raise directors' accountability to shareholders and increase the likelihood of shareholders participating in legal action, particularly if the company and its officers caused shareholders to suffer significant financial loss.

“The scope of persons able to bring an action as well as the basis for liability is now much wider,” says Philip Hobson, Financial Lines Manager at Chartis South Africa.

“This means that anyone, including shareholders and staff members, can sue directors and officers directly, which will heighten their personal liability.”

Currently, a shareholder’s relationship with the company means that they can’t, generally speaking, bring an action against officers directly. They have to request the company to bring a law suit against an officer who committed a wrongful act.

However, directors and company officers are unlikely to bring an action against their colleagues, and therefore shareholders have limited recourse to recover damages from wrongful acts committed by company officers.

“Under the new Act, shareholders will have direct recourse against directors and officers in a personal capacity as long as they can prove they have suffered damages,” says Hobson.

This recourse will now be available to a wider range of persons, not just shareholders. Directors will be personally liable for breaches of their fiduciary duties and may be sued for loss and damages caused to creditors, employees, customers, competitors, shareholders or other stakeholders of a company.

For example, if a director makes a bad decision or acts negligently, causing his company to suffer financially, and this results in retrenchment of an employee, that staff member will be able to bring an action against the company officers directly.

Another significant change in the Act is that it specifically provides for class actions by extending liability to a class of persons. Class actions increase the amount of damages claimed exponentially.

Increased shareholder activism and the extension of liability to a wider class of persons means that South Africa is likely to follow the trend in countries like the US, UK and Australia which all have experienced increased litigation against companies, company officers, and directors.

Australia, for example, which has gone through a similar corporate law evolution, has seen claims against directors and officers double in the last 4 years. In the UK, the D&O insurance market is forecast to grow by 27% to £596 million by 2013.

Directors and officers need to be prepared for the changes in the Act and the wider basis for liability, as their own assets will be in the firing line should an action be bought against them. This means they could face very large monetary damages.

Hobson warns that management should make sure they are properly insured for any eventuality.

“Companies, directors and their insurance advisors aren’t well prepared for the risks that could arise from increased shareholder activism and class actions. Considering the Act provides for personal liability, which could cost directors financially, they need to ensure they are adequately covered.”

Original article here: Directors can expect heightened shareholder activism under new Companies Act