INSURANCE PART II—MOTOR INSURANCE

Most of us know a little more about motor vehicle insurance than we do about home or medical insurance.?This is because Motor Vehicle Insurance is compulsory in Trinidad and Tobago.?The law also specifies minimum limits of liability in the case of death, bodily injury or damage to property.?As such, all motor policies include Third Party Risks and cover is evidenced by the issuance of either a Cover Note or a Certificate.

Cover Notes are issued to provide an insured with evidence of cover prior to the issuing of the Certificate of Insurance.?It is usually temporary and issued at the underwriter’s discretion.?And the law requires that everyone in control of a Motor Vehicle on a public road must have in his/her possession a Certificate of Insurance to prove that the vehicle is insured.?This is why the first thing a police officer usually asks for is your driver’s licence and certificate of insurance if you are pulled over.?

TYPES OF MOTOR COVERAGE

Comprehensive Cover

Subject to an excess, this policy covers liability for death or injury by accident, fire or theft to: 1. Third Parties; 2. Damage to Third Party property and, 3.?Loss of or damage to the insured’s vehicle. Optional cover is also available for the following, for an additional premium:

• Windscreen/Window: The Policy can be extended to cover any claim by the Insured for the cost of replacing any glass in the Windscreen or in the windows of the Motor Vehicle following breakage (provided there is no further damage to the Motor Vehicle) up to a specified amount. ?Payments under this special cover are not counted as a claim for the purpose of the No Claim Discount clause.
• Special Perils: This covers loss or damage due to flood, typhoon, hurricane, volcanic eruption, earthquake, strike, riot, and civil commotion subject to exclusions based on the insurance company.
• Roadside Assistance: a complimentary service for comprehensive clients offering various benefits including accident and breakdown recovery services such as towing, jumpstarting and battery replacement.

Third Party Cover

This type of policy covers liability for death or injury to Third Parties and damage to Third Party property.?No excess is usually applicable to Third Party Policies.?Simply put, it covers the cost of third-party compensation claims if you, or an authorised driver, causes an accident in which someone else is injured.?It covers the cost of the injured person’s medical treatment, lost earnings or, in more serious cases, ongoing care. ?If they’re killed it may compensate their relatives.?Third parties who could claim against you include your passengers and other road users such as pedestrians, motorcyclists, cyclists, other drivers and their passengers.

DRIVERS

A Motor Insurance policy is open to all authorised drivers between 25 and 65 years of age with at least two years regular, claims-free driving experience.?Drivers under the age of 25 and/or drivers with less than two years regular, claims-free driving can be covered for an additional premium. Some insurers also require completion of a Defensive Driving programme for these young or inexperienced drivers.

NO CLAIM DISCOUNT (NCD)

This is a discount which is applied to your annual premium. It is earned by the insured upon renewal of the insurance coverage on each vehicle that has been insured provided no claim has been made or is pending.?The No Claim Discount is determined based on the type of vehicle (Private vs. Commercial registered) and is increased every year up to a maximum percentage.?The typical scaling over a five-year period up to the maximum is:

• Private Cars Full Comprehensive:???????????????????15%; 30%; 40%; 50%; 55%
• Private Third Party:??????????????????????????????????????????15%; 20%; 25%; 30%; 33.3%
• Commercial (Comprehensive & 3rd Party):?? 15%; 20%; 25%; 30%; 33.3%

A No Claim Discount is transferable between the insured, and their spouse.?It can also be transferred to and from private and commercial vehicles for the equivalent discount earned, or it can be applied from a previous insurer for the equivalent discount earned, if you provide evidence of the discount by your previous insurer.?The NCD can be suspended or reduced subject to any claims pending under the policy.

You must remember that you are not only taking out insurance to cover the cost of replacing the car should there be an accident and a total loss or write-off; you are also covering your liability for death or injury to passengers, both in your vehicle and any other vehicles involved in an accident, and the damage to a third party’s car.?So, let’s provide answers to some of the typical questions that you may have.

HOW MUCH COLLISION AND COMPREHENSIVE COVERAGE DO I NEED?

This is usually the costliest part of motor vehicle insurance.?Comprehensive coverage is not mandated by law, it is optional.?However, if you leased your car or borrowed to purchase it, the lender would most probably require you to purchase comprehensive insurance.?Most insurance companies will insure for the price paid for the car.

The premiums for replacement cost coverage (‘New for Old’ or ‘Agreed Value” Policy) will be higher, but it may make sense since this type of coverage will replace or repair your car without deduction for depreciation.?Actual cash value policies, on the other hand, only pay for the current value of the car at the time it is stolen or damaged, after deducting for depreciation.?Therefore, if you have replacement cost coverage, you should consult with your insurance company to agree on the car’s current valuation and use this as a basis for determining coverage. ?Your vehicle’s value depreciates every year, and it is in your best interest to ensure that at the time of insuring and renewing, you use the right replacement value. ?You do not want to pay for coverage that you don’t need.

When deciding on the amount of coverage you will need for liability, medical payments, etc., consider your personal situation.?What level of coverage will make you feel safe??Is your car brand new or over five years old??How much would it cost you to replace it??Do you have enough savings, other resources, or medical insurance to pay your medical bills and car repairs?

Note that if you have medical insurance, provided by your employer or on a policy that you took out, you should ensure that you don’t have duplicate coverage.?Most comprehensive policies for private vehicles have a small medical limit covered. This should not be considered a replacement for any medical cover that you should have in place since it will not cover any passengers or other injured parties who are not covered by your policy. You should ask your insurance provider to confirm whether passengers (or passenger liability) are covered in your policy.

DEDUCTIBLES or EXCESS

?Many insurers use the term either deductible or excess interchangeably.?In some cases, you can reduce the premium by increasing the deductible.?You're responsible for your policy's stated deductible each time you file a claim. ?For example, if you destroy your car, your insurer will give you a payment for the vehicle's current value, minus your deductible. ?If your car is worth $250,000 and your deductible is $20,000, your insurer will pay you $230,000.?On the other hand, if the damage to your vehicle amounts to $5,000, and your deductible is $20,000, then your insurer will pay nothing, as they only cover damages above your deductible.

Deductibles range from a minimum 1.5% of your vehicle’s value to 10% or even 15% depending on the type of loss.?Typical types of loss include accidents involving an insured person or their spouse, a young driver, flood, theft, malicious damage or fire. The deductibles for each of these losses vary.?However, you should note that windscreen claims will almost never have a deductible.

What Deductible Should I Choose for Car Insurance?

Whilst a deductible is often a source of distress for some persons, it exists to prevent persons from claiming for very trivial losses.?If everyone was able to claim for every scratch and dent to their vehicles, pretty soon insurance costs will rise because the premiums will no longer be able to cover these losses.?Deductible amounts typically range anywhere from 2% of the sum insured with a minimum of $2,500 to 15% with a minimum of $10,000 for theft. ?Please note that there's never a wrong choice when selecting a deductible. It comes down to what you prefer:?Higher deductible = Lower premium and higher out of pocket costs.?Lower deductible = Higher premium and lower out of pocket costs.

HOW ELSE CAN I REDUCE MY MOTOR INSURANCE COSTS?

The premiums on your car insurance are based on your age, gender, where you live, the type of car you drive and your driving record.?It is important that you inform your agent of your clean driving record.?I also expect to see the use of apps to monitor your driving, with your permission of course, and the ability to earn safe driving discounts based on the data collected by the app and submitted to the insurance company.

Most insurance companies also reduce your premiums based on a combination of your age, marital status, gender and occupation.?Authorised drivers, age 25 to 65, with two or more years driving experience, is the usual threshold for the lower rate.?For certain special types of vehicles, e.g., trucks and mini vans, which require a higher level of driving skill and experience, 30 is the minimum age.?Certain segments of society receive a more favourable rating because the risk of an accident is lower, e.g., they spend less time on the roads, frequently have young children in the cars, or work a desk job.?Also, if you are in university and get good grades, some insurance companies will offer small discounts, even for a few years after you graduate.?You should ask about this.

You should also ask your agent for a list of cars that are considered “higher risk” (propensity for theft/carjacking, high-performance engines, etc.).?And you should ensure that your agent is aware of any special safety features like an alarm system or GPS.?With the increase in the number of carjackings it is very sensible to get a GPS system for your car, so that it can be recovered quickly.?If there are multiple cars in your household, ask if you are eligible for a multiple-car discount.

I would like to thank Musa Ibrahim, Natasha Pettier and Dunstan Lodge, dedicated insurance professionals, who helped with these articles on general insurance.?Next week we will begin looking at life insurance.

Cheers, Nigel

Nigel Romano, Partner, Moore Trinidad & Tobago, Chartered Accountants