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The following is extracted from MoneySense series initiated by
Monetary Authority of Singapore.
MAKING SENSE OF MOTOR INSURANCE
Are you thinking of buying a motor insurance policy for your new car
or renewing your current policy? Do you know what to look out for
when buying a motor insurance policy and how to avoid problems when
it comes to making a claim? In the first of a three-part series, we
share two case stories on problems commonly encountered by consumers
followed by tips on what consumers should look out for when buying
motor insurance policies. The tips are taken from two guides
produced by the General Insurance Association of Singapore under the
MoneySENSE national financial educational programme: "Insuring your
motor vehicle" and "What to do after a motor accident".
1)
Understanding what your motor insurance policy covers
Mr Kevin Phua bought a secondhand motorcycle through a dealer in
September 2002. As he did not have much savings left after buying
the motorcycle, he told his insurance company that he wanted the
cheapest motor insurance policy available. As he thought that all
motor insurance policies were quite similar, he did not ask about
the type of coverage being purchased. In November 2003, Mr Phua's
motorcycle was stolen. He reported the matter to the Police and
filed a claim with his insurance company. To his surprise, he learnt
that his policy did not cover loss or damage due to fire and theft.
Mr Phua appealed to the insurance company, claiming that the staff
had not explained the coverage of the policy to him properly. The
insurance company rejected Mr Phua's claim as the policy contract
clearly stated that the insurance company would not have to pay for
any losses arising out of theft or damage to the insured's own
vehicle.
MoneySENSE tips for consumers:
* In Singapore, it is against the law to drive a motor vehicle on
the road without a valid insurance policy.
* Insurance companies offer three main types of motor insurance
policies:
(i)
Third party - This type of policy covers death of, or injury to,
other parties and damage to other people's property. Under the law,
the minimum requirement is that the policy provides cover for
causing death of, or personal injury to, other parties.
(ii) Third party, fire and theft - On top of third party coverage,
this type of policy further allows you to make a claim should your
own vehicle be stolen or damaged by fire.
(iii) Comprehensive - This type of policy provides cover for
personal accident and accidental damage to your vehicle on top of
protection against fire and theft, as well as third party death,
injuries and property damage. Everything else being equal, this type
of policy would thus cost more than other types of policies. Even
so, most people opt for a comprehensive policy because of the peace
of mind it brings.You may even be able to add on optional benefits,
such as coverage for windscreen damage, by paying a higher premium.
* Before
you purchase a motor insurance policy, read the contract terms and
conditions carefully, including the fine print. You should have a
good understanding of the policy. If there is anything in the policy
documents that you do not understand, seek clarification from your
insurance company or agent. Do not buy anything you do not
understand as it may not meet your needs.
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2) Disclosure of information to your insurance company
In March 2004, Mr Mohd Kassim bought a motor insurance policy for
his brand new car. The policy carried an excess of $2,000. Although
Mr Mohd had the intention of letting his 21-year-old daughter, who
had just passed her driving test, use the car, he did not name his
daughter in the policy as he felt that such details were private and
unimportant. In May 2004, Mr Mohd's daughter was involved in a car
accident while driving Mr Mohd's car and the claim amount worked out
to $18,000. As a result of the non-disclosure of information by Mr
Mohd (about his daughter driving the car), the insurance company
applied a higher excess of $5,000 due to the unknown risk covered.
MoneySENSE tips for consumers
* An excess is the cost you may be required to bear should you make
a claim or in the event of a claim being made against your policy.
* It is your duty to fully disclose information that may have a
bearing on your policy cover. If your vehicle is damaged while being
driven by a person not named in your policy, the insurance company
may apply a higher excess due to the unknown risk covered. If the
vehicle is damaged while being driven by a young or inexperienced
driver not named in the policy, you may be charged a higher excess.
The definition of young and inexperienced driver varies from insurer
to insurer. You should check the definition in your policy.
* You should declare the names of the people who will be regularly
driving your vehicle. This allows your insurance company to assess
the risk profile accurately and set the appropriate premium and
excess.
* For some vehicles, such as high-performance cars, your insurance
company may specify that coverage will only apply to drivers named
in the policy, i.e. authorized drivers. In such cases, the insurance
company has the right not to meet its contractual liability if the
car is driven by an unnamed driver, even though the person may hold
a valid driving licence and may be driving with the knowledge and
consent of the owner of the vehicle.
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3) Understanding how premiums are set
Mr
Mohd Ismail, an executive in his mid-twenties, was in the process of
buying a new car and asked an insurance company for a premium
quotation for a comprehensive motor insurance policy. The insurance
company informed him that due to his age, the quotation was 10%
higher than it would be otherwise. Mr Mohd questioned the insurance
company on the rationale for imposing such a "levy". The insurance
company explained that the premium was calculated based on the
profile of the driver, which takes into consideration a number of
factors including age, sex and occupation, as well as the
characteristics of the vehicle.
MoneySENSE tips for consumers
* Most insurance companies in Singapore consider a range of risk
factors when setting premiums. They include, amongst others:
- Make, model and age of vehicle;
- Age, sex and occupation of drivers;
- Claims history of drivers; and
- Use of vehicle (e.g. hire, private use etc.)
* When purchasing a motor insurance policy, you will need to provide
the insurance company with information such as (i) how long you have
been driving; (ii) your claims history; (iii) who will be driving
the vehicle; and (iv) what the vehicle will be used for. This is to
help the insurance company assess your overall risk profile as well
as your needs as a policyholder. The information you provide will
also enable the insurance company to set a proper premium for your
policy.
* It is your duty to disclose all information factually and
completely to the insurance company. Insurance company has the right
not to meet its contractual liabilities under the policy or void the
policy from its inception for non-disclosure of such material facts.
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4) How the No-Claim Discount works
Ms Tan was involved in a minor road accident in August 2003. She
reported the accident to her insurance company as required by the
policy. Two months later, her policy renewal letter came and she
realized that: (i) 30% of her No-Claim Discount (NCD) had been
deducted; (ii) a sum of $3,000 had been set aside as a "claims
reserve" in case a claim was filed; and (iii) the premium for her
policy had increased. Ms Tan called the insurance company, arguing
that neither she nor the third party had made any claims. As such,
the insurance company should not have deducted her NCD and set aside
a claims reserve. The insurance company informed Ms Tan that the
third party had sent in a claim of $2,500 against her for
rear-ending his car. In a typical rear-end accident, the driver of
the vehicle behind is deemed to be at fault. So the third party had
the right to make claim against Ms Tan. The insurance company
further explained that should there be no claim against her for the
next 12 months, they would reinstate her NCD and refund the extra
premium which she had paid. The company also explained that
practices with regards to NCD vary from company to company.
MoneySENSE tips to consumers:
* You are entitled to a No-Claim Discount (NCD) if no claim has been
made against your policy, either by yourself or by a third party for
a period of 12 months between each successive renewal of the policy
(such practice may vary across different insurance companies). The
NCD reduces the premium you have to pay for the following year. This
is your insurance company's way of recognizing you for having been a
careful driver. The following table shows how the NCD is awarded by
all insurers across the industry.
|
Private Car Policies |
Commercial Vehicle & Motorcycle Policies |
|
Period of insurance with no claim |
Discount on renewal |
Period of insurance with no claim |
Discount on renewal |
|
1 year |
10% |
1 year |
10% |
|
2 years |
20% |
2 years |
15% |
|
3 years |
30% |
3 years or longer |
20% |
|
4 years |
40% |
|
|
|
5 years or longer |
50% |
|
|
* When a policyholder reports an accident to the insurance company,
and if the facts and circumstances seem to suggest that the insured
driver is likely to be at least partly responsible for the accident,
a claim reserve is created in anticipation of a claim to be filed by
the third party or the policyholder himself.
* All insurance companies in Singapore use a guide called the
Barometer of Liability Agreement (BOLA) to determine how much each
party is liable in an accident. BOLA is designed to expedite up
claims processing. It does not diminish your right to contest
liability under the law. Under BOLA, your NCD will not be affected
if your liability is 20% or less in an accident involving an
identified vehicle. In all other cases, your NCD may be affected.
The amount of claim that is lodged or likely to be lodged does not
affect the proportion by which the NCD will decrease.
* You should always notify your insurer of any accidents in which
you are involved, even if you are not claiming under your own
policy. By doing so, you are fulfilling the policy condition
requiring you to inform your insurer of any possible claims arising
from your policy as soon as possible. Your insurer will thus have a
record of the accident, so that if the third party decides to pursue
a claim against you, your policy will respond. Under the policy
contract, you should avoid entering into private settlements with
third parties as this may affect your insurer's subrogation rights.
Entering into a private settlement is equivalent to admitting
liability on behalf of your insurer. This is in breach of a policy
condition. Therefore, if the third party decided to pursue a claim
against you despite the private settlement, your policy would not
respond.
* You should seek clarification on your NCD and premiums if there is
anything you do not understand.
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5) Spare parts used in repair works
Mr David Lee was involved in a motor accident in May 2004. His
eight-year old car was assessed at the Independent Damage Assessment
Centre (Idac) and subsequently referred to an authorized workshop of
his insurance company. The price tendered by the workshop came up to
$2,000. However, on checking with his car agent, Mr Lee discovered
that the cost of genuine parts (not including the paint and labour)
already came up to $3,500. Mr Lee asked the insurance company why
the workshop was not using genuine parts for the repair of his
vehicle. The insurance company clarified that according to its
replacement policy, vehicles that are less than three years old will
be repaired using new genuine parts, whereas vehicles more than
three years old are likely to be repaired using reconditioned parts
of a comparable quality. As a gesture of goodwill, the insurance
company offered to pay Mr Lee cash of $2,000, which was the amount
charged by its workshop, should he insist on repairing his vehicle
at a workshop of his choice.
MoneySENSE tips for consumers:
* The aim of most motor insurance policies is to have your vehicle
restored to as near a condition as the one it was in before the
accident. Based on this principle, for a relatively new vehicle,
damaged items will usually be replaced with new parts, which are
either genuine or OEM (Original Equipment Manufacturer) parts.
However, for vehicles more than three years old, the insurance
company may opt to use good-quality reconditioned parts. In such
instances, a six-month warranty for repairs is usually provided by
the workshop. When purchasing a motor insurance policy, you should
ask the insurance company or agent to explain to you their
replacement policy (i.e. whether your vehicle will be repaired with
new or used parts).
* Your insurance company may impose restrictions on who can repair
your vehicle. More expensive policies may allow you to go to the
workshop or dealership of your choice instead of only workshops
authorized by the insurance company.
* Your insurance company is encouraged to disclose to you any
restrictions on repairs before you buy the policy. Nevertheless, you
should ask whether there are conditions relating to use of dealer
workshops and authorized workshops.
- Dealer workshops
The warranty on new or relatively new vehicles will often state that
the vehicle has to be repaired by the dealer or appointed agent of
the manufacturer. If this is the case with your vehicle, you should
check with the authorized motor dealer, agent or distributor on the
terms and conditions of your warranty as repairs by other workshops
may affect this. Some insurance companies that restrict repairs at
dealer workshops may agree to take over warranty of the vehicles.
You should check with your insurance company on this.
- Authorised workshops
Some insurance companies limit your choice of repairer to a panel of
authorized workshops, which does not always include authorized
dealerships. Upon completion of repairs, a six-month warranty is
usually given.
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6) Cancellation of policy
Mr Muthu Krishnasamy bought a motor insurance policy for his
three-year old car from an insurance company. Before his policy was
due for renewal, Mr Krishnasamy received a written notice from the
insurance company that his policy would be cancelled. No explanation
for the cancellation was provided. Mr Krishnasamy had made two
consecutive insurance claims in the last six months amounting to
$21,000 and $38,000. He felt that it was unfair for the insurance
company to cancel his policy due to these claims. The insurance
company explained to Mr Krishnasamy that one of the conditions in
his insurance contract gave the company the right to cancel the
policy by giving the policyholder written notice of seven days.
MoneySENSE tips for consumers
* Both you and your insurance company have the right to cancel the
motor insurance policy for any reason by giving written notice of
seven days to the other party. Insurance companies can decide not to
renew a policy after a major accident claim. These are business
decisions of the insurance company.
* If your insurance company cancels the policy, it will refund you
the unused proportion of the premium. Some insurance companies
refund the premium on a pro-rata basis with the deduction of a small
administration fee. Others use a method that calculates what would
have been charged if your policy were a short-term policy. This
usually applies if the cancellation is at your request. You should
check with your insurance company how it calculates policy refunds.
* Note that refunds may be subject to a minimum amount, and that
your insurance company may reserve the right not to refund any
premium if a successful claim has been made on the policy.
* Make sure you check carefully and understand what the policy
covers before you buy the policy.
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