Clawing back an insurance excess
When you buy a short-term insurance policy, you should be mindful of the excess, or excesses, that will be applied when you claim.
In the case of motor insurance, you should also know that if you did not cause a motor vehicle accident and your insurer recovers money from a third party, it is obliged to refund you all or a portion of your excess. If the insurer does not recover your excess from the third party, you will not receive a refund.
You and your insurer are the first and second parties to the insurance contract, and anyone else not bound by the contract is the third party.
The excess is the first amount of money you have to pay when you lodge a claim. The insurer is obliged by law to explain the excess structure of the policy to you – the basic excess and any additional excesses. This can be done during the underwriting of the risk if, for example, you are sold the policy over the phone, or the excess structure should be clearly set out on the proposal form.
If you use a broker, he or she must inform you of the excesses.
The excesses must be paid even if someone else caused the the accident.
Whether your insurer decides to recover money from the third party will depend on whether it is economical to do so, taking into consideration the legal costs of the action.
If money is recovered, you will receive a refund, although the amount you receive will be determined by the terms and conditions of your policy.
Dennis Jooste, the Ombudsman for Short-term Insurance, reports on the case of Mrs M, who was involved in a car crash caused by a third party. Her insurer, Western National Insurance, wrote off her car, because it was uneconomical to repair, and calculated its liability based on the market value of the vehicle. But about R45 000 (40 percent of the claim) in respect of the basic and additional excesses was deducted from the settlement offer.
Mrs M approached the ombudsman to investigate whether or not the insurer was entitled to charge such a high excess, as well as how much of the excess should be refunded to her once the insurer had recovered it.
Western National provided the ombudsman with a recorded sales conversation in which Mrs M was advised of the basic excess, as well as the additional excesses that might apply.
The insurer confirmed that a recovery had been initiated against the third party’s insurer, which had accepted liability for the accident.
It also referred to the policy wording regarding the refund of the excess: “On the successful recovery of any amount recovered from a third party, the insured shall be refunded the first amount paid (the excess) on condition that the insurer has recovered all of the costs pertaining to the claim, which includes but is not limited to all own damages, towing and storage fees, assessor’s fees, legal fees, tracing fees, admin fees and/or the like.”
Western National recovered R71 000 from the third party’s insurer, plus R22 000 from the proceeds of the salvage, a total of R93 000.
After the insurer had deducted the costs it had incurred, as stated in the policy wording, Mrs M had been offered a R8 000 refund on the excess.
The ombudsman was satisfied that Mrs M had been told about the structure of the basic and additional excesses before the commencement of the policy.
A recommendation was made by the ombudsman to Western National to consider calculating the excess refund based on the percentage paid by each party in relation to the total amount recovered by the insurer.
The insurer’s administration and settlement costs amounted to 65 percent of the claim. Western Nation was asked to refund Mrs M the balance of R33 000, or 35 percent of the total amount recovered. But the insurer said it was prepared to refund only up to 28 percent of the recovered amount. It offered Mrs M R21 000, which she accepted.
BASIC AND ADDITIONAL EXCESSES
Motor vehicle policies normally have a basic excess (of, for example, R3 000) and various additional excesses that are payable depending on the risk profile of the policyholder or driver and specific conditions surrounding a particular claim.
Conditions under which additional excesses may be levied include:
* The driver is under the age of 25;
* You claim in the first six months of taking out the policy;
* The accident is between midnight and 5am;
* Your car is not fitted with the minimum security required, such as a tracking device; and
* It is a one-party accident – no other vehicles besides your own were involved.
Call the Ombudsman for Short-term Insurance, Dennis Jooste, on 086 726 890 or 011 726 8900. Fax to 011 726 5501 or email email@example.com