A car insurer has to take several factors into account when calculating the car insurance premium payable. These factors include driver factors, vehicle factors as well as the area where the owner intends to drive such vehicle most of the time. The car insurer will seek to determine how these factors will influence the risk to vehicle loss or vehicle damage.
Why do we say that the area is important? Insurers can use accident data and crime statistics to determine what the risks are to the specific vehicle to be insured. In the same way that property prices differ from area to area, the risks to vehicle damage or loss may differ. Accident data will reveal that many more accidents occur in the heavily vehicle populated cities than in towns and rural areas. Crime statistics will also confirm that the risks of hijacking, vehicle theft and smash-and –gab are much greater in our cities than in smaller towns! It is only reasonable to expect that the greater the risk of vehicle damage/ loss, the higher the insurance premium payable.
But why is this important for the insured client? Apart from determining the premium payable, the client will have to ensure that he abides by the stipulation in his policy contract to disclose any changes in the risk status. This means that in the event of a change in regular driver of the vehicle or risk area, the insurer has to be informed and a new premium calculated. Failure to do so will constitute a serious breach of contract and the insurer could reject his claim!
I would like to provide an example from a decision by the Ombudsman:
The Insured owned five vehicles, all of which were insured and it was noted on the information given that the risk area was Durban, where the Insured resided. A Toyota Conquest was regularly used by the Insured’s daughter, and in April 2005 was taken with her when she moved to Johannesburg to attend university. The Insured did not advise the Insurer of the change in risk profile, and when a claim was lodged five months later, it was rejected. The Insured was adamant that there was no obligation on him to have advised the change in risk area as this requirement was never brought to his attention at any stage.
The Ombudsman (subject to critical comment from the Insured), advised the Insured that the Insurer’s decision was correct and gave the relevant explanation in support of the rejection of the claim.
[Source: Ombudsman’s Briefcase Issue No. 02/2006]
This Decision should raise alarm bells with many insured vehicle owners. This is a scenario that often plays out with our young drivers. Parents buy a vehicle for a child on the platteland or small town, insures the vehicle correctly in the name of the young driver and then allows the child to take the vehicle to the city where the child studies or works for 3 years or more.
Failure to disclose to and notify the insurer of such a change in the risk area is a breach of contract and will entitle the insurer to reject a claim by the insured client. We are not referring to short term changes such as business trips, vacation etc, but rather a prolonged change in risk area where the vehicle is to be driven.
We need to emphasize the importance of communication between the client and his insurer. Car insurance should not be seen as a once-off event – but rather as a continuous relationship between parties which needs adjustment and fine-tuning as circumstances change!!