Steamrolled by 'knock for knock' pact between insurers
Insurance Helpline With Cedric Stephens
On March 28, 2012, I was involved in an accident. The other party failed to stop at a four-way intersection. He hit my car and accepted liability. My insurer said that due to an agreement between them and the third party's insurer, I will have to claim a portion from my policy. The other company will pay only my five per cent excess. The agreement, according to my insurer, is that once two parties in an accident are comprehensively insured, both parties will have to stand the cost of repairs. The third party's insurer will not honour my claim in full even if their client accepts liability. Is the agreement legally binding? Do I have to accept the position that my insurer has put forward? Will I lose my no claims discount? Is my premium likely to increase as a result of the agreement?
Poor communication and ignorance on the part of the service provider are the root cause of your fuss. I tried unsuccessfully to make a similar point in my last article - 'Drunk driver cited in denial of accident victim's claim.' The editor disagreed. Blame lay with the drunken driver, the headline asserts. "Frustrated ... customer," suggests to me that the insurer and its agent did not meet your service standard and, as a result, your insurance contract was found wanting.
Similarly, email@example.com, the person whose case was the subject of the earlier article, expected that her insurer would know about the Road Traffic Act, and how it applied to holders of foreign driver's licences. With apologies for the self-promotion - which seems ill-advised in these days of Facebook, Twitter and other social media - had this column not discussed these matters, the facts would have remained hidden.
I wrote about the "inter-agency agreement" four years ago. It is much better known as the Knock-for-Knock Agreement.
One of my friends who worked in the insurance industry for over 30 years paid me the ultimate compliment after he read the article. It was the first time that he had such a clear understanding about the agreement and how it worked.
Here are extracts from it that will answer some of the questions that you posed:
"The Knock-for-Knock Agreement is one of two claims-handling agreements. It applies in cases where say, two vehicles, have 'comprehensive' policies.
Each insurer would settle its customer's property damage claim less the deductible or excess.
The insurer of the driver who caused the accident would pay the uninsured expenses - excess and loss of use expenses - incurred by the other person. The negligent driver would lose his no claims discount while the other person's would not be affected.
Insurers in Jamaica - as elsewhere - enter into claims-handling agreements. They contain pre-agreed formulas for dealing with claims involving vehicles each company insures when they collide with each other.
Their goal is to avoid lengthy delays and court costs. The theory is that consumers benefit from lower insurance premiums as a result claims-handling agreements, in my judgement, do not harm insurance consumers. Until proven otherwise, I strongly believe that they do not violate the Fair Competition Act.
I referred your complaint to a senior official of your insurer.
This is a summarised version of what she wrote.
"Each insurer will pay their client's own damage claim. However, because our insured was not at fault, the TP insurer will pay our client's uninsured losses (e.g. excess, etc). Our client was told that we would pay his claim under his policy and that we would recover his uninsured losses from the TP's insurer, since he was not at fault in the accident. In addition, his premiums will not be increased (or his no-claim discount affected in any way) because of this accident," she said.
"The Knock-for-Knock Agreement is not legally binding, but we do believe that the client benefits from a speedier settlement as a result. We feel that being able to pay for the own damage claim upfront, instead of recovery having to be effected either directly or indirectly from the TP insurer, ensures a faster settlement for all concerned. As such, we would advise our client to accept this position, so that his vehicle can be repaired as quickly as possible."
Your insurer and I are in complete agreement. Accept their advice. It is a real pity that the front-line service provider did not properly explain the agreement to you the first time around. One of the many tasks a claims professional has to perform is to build brand loyalty - not cause customer frustration.
Cedric E. Stephens provides independent information and free advice about the management of risks and insurance. firstname.lastname@example.org. SMS/text message to 812-7233.