Playing hardball with motor claims
Insurance Helpline with Cedric Stephens
Question: I own a 2005 Toyota Passo. I bought it in July 2009. An insurer-approved valuator assessed its value at $1.05 million. I paid a premium of $72,000 based on that value. On January 5, 2010, the car was involved in an accident. It was declared a total loss.
My insurers now say that the original value was too high. They offered me settlement of $855,000. I am expected to keep the salvage. Its cost will be deducted from that offer. Part of the premium is to be refunded based on the new value.
My husband and I asked for a second valuation. The salvage has since been taken to our home. Do insurers have the right to make a policyholder pay a premium based on one value and, in the event of an accident, revalue the vehicle for a lower amount and return the difference in premium? Is it normal to expect the value of a vehicle to decline by nearly 20 per cent in just six months?
Answer: Your case is similar to one that I wrote about a few weeks ago: "Promise of Indemnity Broken." The insurers - like the one in that article - are playing hardball. Why? They lost nearly $300 million between January 1, 2008 and June 30 last year insuring vehicles.
With interest rates trending downwards, even if the number of claims was to remain the same, the company is likely to lose even more money this year. Dumping the salvage on your doorstep is part of their plan to force you to accept the settlement and to find another insurer. If you end up being angry, tough!
The UWI Centre for Leadership and Governance says that seven out of 10 persons polled in 2008 lacked confidence in our banks. My guess, based on readers' questions and interactions with claimants like you over many years, is that most members of the public trust insurance companies even less than they trust the banks.
"Strengthening the integrity of the claims settlement process" promotes confidence in insurance. So says the Financial Services Commission, the industry regulator, in its Market Conduct Guidelines on Best Practice for Motor Insurance Claims.
The 2,161-word document was released last year.
"Promoting the equitable settlement of cases without undue litigation" is one of the five principles on which the guidelines are founded. Disappointingly, there is absolutely nothing in the guidelines that would have caused your insurers to handle your claim in a way that you would not have felt dissatisfied.
On the other hand, you omitted important bits of information from your email. How much you paid for the car? Was there a difference between that price and the first assessed value? What was the salvage value in the second valuation? Were the market/salvage values in the third valuation identical to those in the second? What was the deductible on your policy? The absence of this data prevents me from forming a better opinion.
Your lack of knowledge about some of the nuts and bolts of this issue is not unusual. You have lots of company. Last month, for example, the National Association of Insurance Commissioners, a group of state insurance regulators in the United States, conducted a study. Its aim, among other things, was to find out about Americans' knowledge about insurance.
The survey included a 10-question insurance IQ test. Most persons got only four questions correct.
The insurance IQ in Jamaica is, I believe, lower than that in America. If this hunch is right, shouldn't our insurers take this into account by their actions? Shouldn't the regulators be aware of this and develop best practices that apply to all parts of the insurance-buying cycle and not just to claims?
My short answer to your first question is yes. The typical comprehensive policy says:
"At our option, we may pay in cash the amount of the loss or damage or may repair, reinstate or replace the motor car or any part thereof or the accessories or spare parts ... our liability ... shall not exceed the value of the parts lost or damaged and the reasonable cost of fitting such parts ... our liability shall be limited to the reasonable market value of the motor car at the time of loss or damage, but not exceeding the policyholder's estimate of value stated in the schedule (of the policy)."
Note carefully, the words 'reasonable market value of the motor car at the time of loss or damage, but not exceeding the policyholder's estimate of value stated in the schedule".
Note carefully that your insurer's liability is limited to the "reasonable market value of the motor car at the time of loss or damage".
The "policyholder's estimate of value," or the original assessed value of the J$1.05 million is the theoretical limit that insurers may pay, if the circumstances so warrant.
The key words are the "reasonable market value ... at the time of loss or damage".
In the real world, the market value of a vehicle is unlikely to decline by 20 per cent in six months.
In the insurance world, however, any number can play. At least, this is from my reading of the contracts.
The promise of indemnity is, unfortunately, just a promise in your case.
Cedric E. Stephens provides independent information and free advice about the management of risks and insurance. Email: firstname.lastname@example.org or send text (SMS) message to 812-7233.