Trying to get money under false pretences

Insurance Helpline with Cedric Stephens

Question: I am a 32-year-old woman. I work with a teaching institution. My Toyota Corolla was stolen last October. It was fitted with an alarm system and kill switch. My insurers paid the claim after two months of intensive investigations. I received $700,000 after repaying the loan and the 10 per cent excess was deducted.

I looked at replacing the Corolla with a 2006 Toyota Tundra with an estimated value of $2.6 million. The insurance brokers said that the best quotation was from my ex-insurers. They quoted a premium of $332,000. Was that fair? Even if I could buy that vehicle, I would not be able to afford to insure it at that price.

I am now looking at a 2.5 litre turbo engine diesel, 2004 Nissan Frontier. It is valued at $1.5 million. What advice can you offer?

- A.N., Kingston 10.

HelpLine: The equivalent of the JMD premium for insuring the Toyota Tundra locally at the current exchange rate is US$3,860.46. That compares with US$3,543.81, which is "the average annual national premium (in the US) for (insuring) the powerful Mercedes SL65 AMG roadster ... for a good driver who hasn't racked up any speeding tickets or (had) previous insurance claims," according to Insure.com.

That vehicle, by the way, "a sleek, two-door convertible with a 6-litre, V12 turbocharged (604 horse-power) engine, can accelerate from zero to 60 miles per hour in 4.2 seconds and to 120 mph in just 12.8 seconds".

It is the most expensive 2011 vehicle to insure in the US, says the same source. Why are local insurance premiums so high in comparison to prices in the US?

Frankly, I do not know enough about auto-insurance prices in the US to offer a meaningful answer. The premium that your former insurers quoted should, however, be viewed in the context of their reported financial results. The company lost nearly $317 million after paying claims and expenses from the premiums that they collected between 2007 and 2009.

Past losses

However, that information does not help to find a solution to your problem. What it means is that your ex-insurers cannot be relied upon to offer competitive terms. The premiums that they now charge are set at levels to recover past losses. Your brokers should have known this, especially after your claim, which I believe added over $1 million to the claims bill of your ex-insurers last year. Another conclusion can be drawn from those financial results: the brokers are part of your problem.

I sent requests for quotations to five insurers, including your ex. All of them were provided with the same information based upon the details that you provided. I also said that you would give consideration to installing an electronic vehicle tracking device in the new vehicle given your previous experience. Also, that the premium and the deductible, or excess, should be calculated to take account of these safety measures.

Only three insurers replied at the time of writing. Your former insurers were not one of them. The quotations are summarised in the table above.

Three broad conclusions can be inferred from the information in the table.

Broker failed

The first is that the data supports my criticism about your broker. There is evidence that they have failed to properly discharge their professional duty to you.

The second is that the motor-insurance market is working. There are companies other than your former insurers who are very interested in insuring you/your vehicle at terms that are substantially below the $332,000 that you were offered for the higher-priced vehicle.

The terms that these insurers are prepared to offer are not unduly influenced by the theft of your motor car last year as appears to be the case with your former insurers.

Finally, the premium that is charged by motor insurers is influenced by the make and value of the vehicle in addition to the driver's age, gender, driving experience, and claim history.

There are factors other than those listed in the table which should be taken into consideration in deciding which quotation to select. For example, the limits for personal-injury claims for Company A are fixed at $3 million any one person, and $5 million any-one claim/period of insurance.

Claims for causing damage to the property of third parties are set at a maximum of $2 million any one period of insurance.

The comparable limits for Company B is $5m/$5m/$5m, and for Company C, $3m/$5m/$3m.

These limits are of great importance since court awards and legal fees alone in negligence claims involving motor vehicles oftentimes are substantially more than the standard policy limits. Company B has provided full details of the optional extra like manslaughter defence costs - $500,000; breakage of glass - $50,000; wrecker and storage fees - $30,000; as well as its islandwide roadside-assistance service.

To complicate matters, Company C has offered to insure your intended vehicle under a commercial-vehicle policy, while companies A and B assume that it will be insured under a private-car policy. Company B has also offered alternative terms on a basis similar to Company C. These differences need to be analysed.

'Disintermediation' is a term that is used in economics. It means the removal of intermediaries in a supply chain. In more simple terms, "the cutting out the middleman", who adds no value to a transaction.

This principle can be applied to your broker. Fire him! He or she is 'wutless'. Deal directly with another insurer. Email me on Monday and I will give you the names of the three insurers so that you can contact them to negotiate and finalise the details about insuring your replacement vehicle.

Cedric E. Stephens provides independent information and free advice about the management of risks and insurance.aegis@cwjamaica.comSMS/text message to 812-7233