How not to be fooled by car insurers' sweet talk

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How not to be fooled by car insurers' sweet talk

Loyalty is often punished with premium creep unless you make a point of contesting the increases, and that's not all ...

Consumer journalist

When last did you shop around to make sure your car insurance premium is still market-related?
It’s absolutely essential to do that, because when it comes to car insurance, in particular, loyalty is often punished with premium creep unless you make a point of contesting the increases.
Here’s how it works in most cases, according to an industry insider: the insurer will offer you a discounted price to bring you on board, then hit you with above-inflation premium increases for the next two to three years. 
“By the second year, the insurer is usually enjoying a healthy profit margin and you are overpaying for your cover. The longer you stay with one insurer, the wider the gap will become between what you should pay and do pay.“Insurers know they can often get away with charging you an inflated premium for months or years before you challenge them.”
But comparing premiums is only part of the picture, unless of course you never need to claim. Exclusions and excesses – the amount you are made to pay if your claim is successful – are both major factors.
I often hear from people who’ve discovered that at claim time.  “Gugu’s” experience is typical: “I took out insurance on my car while still sitting in the dealership when I bought four months ago. 
“I hit a pedestrian who ran across the freeway suddenly, and instead of charging me the excess I was quoted – R4,300 – they want me to pay that plus an extra R6,000 because there was no third party involved.”
The Ombudsman for Short-Term Insurance warned consumers about this phemomenon recently.
“Some insurers charge low premiums for comprehensive insurance cover and also appear to have low basic excesses – this seems like a win-win until you realise that the insurer charges more than one excess for a single loss, which is applied cumulatively and in addition to the basic excess,” the Ombud said.
“In other words, they are added together one by one and charged over and above basic excess.”
They include the following:
• first-time insurance policyholder excess; 
• licensed driver for less than two years excess; 
• single vehicle accident excess (as in Gugu’s case); and
• accident between the hours of 10pm and 4am excess.“Imagine that a policy has a basic excess of R10,000 and an additional R10,000 cumulative excess for each of these examples,” the Ombud said.
Here’s an extreme example of how those add-on excesses can diminish your cover – if you are a first-time insured, and a newly licensed driver,  and you hit a pothole late at night which results in an accident, your insurer will be entitled to deduct R50,000 from the amount that it pays to you.
If you take out car cover over the phone, those excesses – referred to as limiting clauses – must be disclosed to you before you take out the policy in terms of the insurance industry’s Policyholder Protection Rules.
“While you may be tempted to say yes to lower premiums, beware the consequences of that choice at claims stage,” the Ombud says.
A new kid on the motor insurance block, Naked – underwritten by Hollard – has taken an opposite approach when it comes to excess payments. A single excess amount is payable, whatever the circumstances.Motor vehicle claims made up more than 49% of complaints finalised by the Ombudsman for Short-Term Insurance (OSTI) last year – by far the biggest category of complaints. And of that 49% of claims, a hefty 74%, were claims relating to accidental damage. 
*OSTI provides consumers with a free, efficient and fair dispute resolution mechanism. To lodge a complaint go to osti.co.za.A risky decision for them, no doubt, as that amount may seem high to the consumer who’s doing a price comparison, but not looking beyond the initial excess amount quoted by other insurers.
“Our goal is to retain our customers by offering them the correct premium and transparent excesses, right from the start, and throughout our relationship with them, rather than manipulating by offering them the discount they should have had in the first place when they try to leave,” says Naked co-founder Alex Thomson.
The Ombud’s office has also warned consumers about advertised claims of a “fixed premium” – in other words, a monthly premium which won’t increase, saying that may also be an indication of “limited cover”.“As soon as the consultant uses the terms ‘limited cover’, ‘not comprehensive’ or ‘build your own cover’, beware! It is not a comprehensive policy that the insurer is selling to you.”
The question to ask, when taking out car insurance, is this: “What does the policy NOT pay for?”
And the answer may tell you that in terms of what you’ll get for what you’re paying – should you have to claim – is not such a great deal after all.
You may discover, for example, that you’ll be left to pay for the repair of your own vehicle and towing it from an accident scene. Buyer beware.
CONTACT WENDY:
Email:consumer@knowler.co.za
Twitter:@wendyknowler
Facebook:wendyknowlerconsumer
#SHELFIEBlue tax? So much for the pink tax!  While researching the issue – women’s version of men’s products costing more – I came across this anomaly at Woolworths this week. The 200g Nivea Black-White anti-perspirant spray for men had a price tag of R39,99 while the woman’s version, in a more shapely can, naturally, cost R29,99 – a whole R10 cheaper. And yes, I checked and I have a till slip to prove it.

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