This week the Ombudsman for Short-Term Insurance (Osti) released its annual report. Based on the number of complaints we receive from readers, it is not surprising that motor vehicle insurance makes up the most complaints at more than 48%.
Of these complaints, 18% of motor vehicle insurance disputes were resolved in favour of the insured and a total of R53 641 058 was ordered to be paid out.
We spoke to Ayanda Mazwi, senior assistant ombudsman, to understand why motor insurance is so contentious.
Mazwi said the majority of these claims related to accidental damage and specifically the amount offered for the settlement of claims. In cases where a car is a write-off, the insurer will pay out the insured value of the car. It is this insured value that is often in dispute.
Mazwi said there are three values that you can use when insuring your vehicle – the retail value, market value and trade value. These all have a different premium rating and the cheaper your cover, the more likely you will be insured at the lesser value.
The three types of value:
Retail value is the amount that the car is likely to retail at – in other words the price you would pay to buy it. Mazwi says this is calculated using the auto dealers’ guide. The guide is an average guide to the retail price of the car, which means the same car could be on the market at a higher price. As this is the maximum amount you could be paid out for a car – insurance at retail value would be higher than if you insured at market value.
Market value is the lowest amount your car can be valued at. This is again based on the auto dealers’ guide and is usually the amount a dealer would pay for the car – not how much it would retail for. Finally, there is the trade price which is between the market price and retail price and is usually how much you would be paid for a trade-in. Mazwi says often during the sales process of the insurance policy, the car owner wants to select the lowest possible premium and selects market value. However, when their car is written-off in an accident, they then question why they have been paid out an amount which is too low for them to replace the vehicle.
Another contentious point is about the salvage value of the car. Mazwi says many clients are under the impression that they can get the full insurance pay-out and still keep the salvaged car, which they can then sell for spare parts or try to have repaired. However, if the insurer pays out the full insured amount, the contract allows the insurer to keep the salvaged vehicle.
“If the insurer pays out the full claim and the insured keeps the salvaged vehicle, they would have been enriched,” says Mazwi. The principle of insurance is that the insured cannot be in a better financial position than before the claim.
In some cases the insured wishes to keep the salvaged vehicle and agrees to a lower claim amount. However, this also raises debates over the value of the salvaged car. In many cases the car owner feels the salvage is worth less than the insurer is deducting from the payout. Mazwi says retaining the salvage reduces the claim payout by 40% to 60% and is based on the general guidelines of the SA Insurance Association. Mazwi says in most cases a customer is better off accepting the full claims payment than retaining the salvaged parts and accepting a lower payment.
Warranties are one of the main reasons for vehicle insurance disputes. Mazwi acknowledges that this is a problem in the industry where many of the extended warrantee policies are too complex and technical for the ordinary consumer to understand. In some cases, the exclusions are so onerous the consumer has virtually no cover.
“We look at these matters very carefully, especially if the disclosure from the underwriter is not clear,” says Mazwi, adding that the regulation around “policy holder protection rules” is being introduced to ensure that these policies are more transparent and highlight the necessary information to customers.
In terms of their rulings, Osti is able to require the insurer to pay out only the insured amount and not any consequential losses or damages incurred. For example, if you had to pay for a hire car or an Uber while waiting for your claim to be resolved, that would not be covered in Osti’s ruling.
However, Mazwi says in instances where the insurer was unreasonable and the claim dispute was not based on merit, or the insurer was seen to be obstructing the process, Osti would consider awarding damages. However, this would be on a case-by-case basis.