How to navigate the nuances of motor insurance to prevent claim rejections

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Brokers are urged to make their clients aware of the differences between personal (or private) and business (or commercial) use when taking out or updating their motor vehicle insurance, to ensure this aspect does not affect a claim.

During the sale of a motor insurance policy, an insurer will usually ask a prospective client what the intended use of the vehicle is. This question is asked to determine the client’s correct risk profile and to calculate the correct corresponding premium.

According to the Ombudsman for Short-term Insurance, many consumers provide incorrect information to their insurer in response to this question because they do not understand what is meant by personal and business use.

“Understanding the distinction between the various usages is important because if an insurable incident occurs at a time when a car is not being used in accordance with the specified usage, the insurer may reject the claim,” the Ombudsman states.

The data is in the details

In the past, most insurers underwrote cars based on their value. But Wynand van Vuuren (pictured), client experience partner at King Price Insurance, says this has changed.

“Insurers have refined their underwriting processes, and the reason for this is to ensure that the premium you pay is not only determined by the car’s value, but also by all the other risks that can be relevant,” Van Vuuren says.

“Relevant risks” include:

  • the make and model of a vehicle;
  • where, when, and how much a vehicle will be driven;
  • where it is parked during the day and at night;
  • whether the policyholder has a good credit history; and
  • whether the regular driver is a man or a woman.

Interestingly, women drivers are generally considered a better risk. “With men, we see more high-speed accidents where the vehicles are written off,” Van Vuuren says.

He adds that the premium also depends on how high up the vehicle is on the theft and hi-jack list.

“There are models that, for some or another reason, are not targeted by thieves. But then there are certain models, even low-value models, that they are after.”

Prejudice for the insurer

Van Vuuren explains that incorrect or incomplete answers given during underwriting that result in a premium prejudice may result in the rejection of the claim. The Ombudsman requires at least 10% premium prejudice before a claim can be rejected.

“Let us say you are paying R1 000 monthly premium for a car that is insured for private use, but which was actually being used for business at the time of an accident. Had the usage been disclosed correctly, the premium might have gone up to R1 200 – meaning that you would have been paying more for the increased risk. In this case, the difference in premium of R200 is more than 10% of the total premium, which is considered substantial and would, therefore, affect a claim.”

Understanding usage

The Ombudsman states that private use of a vehicle refers to use only for private and social purposes. In most instances, this includes driving to and from the insured’s regular place of employment but does not include any other form of business travel. This means that a car may not be covered if an insured is involved in an incident while it is at, or being driven to, any place other than the insured’s regular place of business.

Business use refers to the use of a vehicle as part of an insured’s work function. This is, for example, when then insured travels to clients or attends meetings outside his or her primary place of employment. A vehicle that is insured for business use will also be covered for private use.

Other examples of business use include driving to, or parking at:

  • meetings away from the office;
  • training courses or conferences;
  • banks, if carrying out a business-related transaction;
  • post offices, if collecting business correspondence;
  • company team-building events; and
  • business-related social or networking events.

Many insurers do not cover vehicles used to transport fare-paying passengers – and if they do, it will only be under a specialised business policy. However, if you car-pool with colleagues, in your personal car, to the office and back, even if they contribute to the petrol costs, this isn’t seen as business use.

If you use your car to transport goods for business purposes, you will need business insurance.

The grey area

Van Vuuren says that time spent on the road is one of the criteria directly linked to the risk of having an accident.

“A car that is used for business is on the road more and is thus more exposed to the risk of having an accident. Brokers should determine exactly what their clients are using their cars for and ensure that they are insured correctly.”

He adds that when it comes to differentiating between personal and business usage, there can be a grey area.

He says a broker should tell the insurer that even though a client is insuring a private vehicle, there will be some business usage.

King Price, for example, allows up to six business trips a month before the car must be insured for business use.

“Different insurers have different criteria for when usage will start to influence a premium. But if there are more than a certain number of events in a month where a personal car is used for business purposes, it might influence the premium. Brokers must be very careful because the insurers with whom they place the business will have different criteria,” he says.

Getting it wrong

Van Vuuren says that when it comes to claims being rejected based on misrepresentation, misdescription, or non-disclosure, two scenarios usually play out. One is intentional and the other is unintentional.

“There are people who give false information at the inception of a policy, and then there are also cases where clients were using their cars for private purposes at the time that the cover was taken out, but, during the course of cover, there was a change in the usage and the clients forgot to inform their insurers. It also sometimes happens that a client doesn’t understand the question.”

He says this is one of the reasons it is important for brokers to touch base with their clients regularly.

When validating a claim, the insurer has the right to ask the client to provide relevant information, such as monthly mileage. This determination – the onus on the insured to provide relevant information – is built into the contract of insurance as a standard. If a client refuses to provide “relevant information” when asked to do so, he or she will be in breach of contract and the claim may be rejected.

In excess

The excess is the first portion of a claim that must be paid by the client before a total loss pay-out can be made by an insurer or before repairs are begun. If a client cannot pay the excess, the claim cannot be processed.

Van Vuuren says a good insurer will always give their clients the option of selecting an excess that is suitable for their circumstances.

“It works like a see-saw: the higher the excess, the lower the monthly premium, and vice versa. People often make the mistake of pushing their excess up to make their monthly premium as low as possible.

“Let us look at a R5 000 excess. For the first R5 000-worth of a claim, this client would effectively insure himself. If a client chooses a higher excess, say R10 000 or R20 000, and is able to pay that in the event of a claim, then he will benefit from a lower monthly premium. “But if he doesn’t have the means to pay the excess, the insurance is effectively going to be useless for him.”