Time for the FSC to be more consumerist
Published:Sunday | August 7, 2011 | 12:00 AM
Cedric Stephens, Contributor
My vehicle was written off after a truck collided into its rear while it was parked. Can the insurance company, having insured the vehicle at one amount, deduct from the claim what it says, is depreciation in the value of the vehicle? The insurance company have also deducted a service charge (an excess or deductible) from the claim. It said it will recover the excess from the third party's insurer along with any loss of use expenses that I have incurred. Is this correct?
Insurance regulator Bank Negara Malaysia introduced new motor insurance rules on August 1. The aim is "to avoid the over or under-insurance of motor vehicles".
Best Wire, a global source of insurance news, published this two days after the rules became effective. Insurers in Malaysia are required to inform consumers about: "(a) the present market value of their vehicle; (b) the importance of insuring the motor vehicle at the appropriate market value and (c) the effect of over-insurance and under-insurance when a claim is made".
These rules apply whenever insurance is bought or at the contract renewal.
The new measure, the regulator says, "will provide a more objective determination of the market value of motor vehicles - and claims settlement" - and promote the 'fair' treatment of consumers."
Insurers and their agents are also required "to explain to consumers the main features of a motor policy, such as the type of cover, scope of cover and exclusions, contractual rights and obligations of consumers and claims procedures."
The Malaysian rules go a far way in promoting the integrity of and confidence in their insurance industry. If they had been in force here, when you bought insurance, your questions - and those of persons like you - would have been answered long ago.
Ten years after it was set up, our regulator, the Financial Services Commission (FSC), has shown no interest - based on its past actions and the contents of its anniversary feature - in moving in a direction similar to the Malaysian regulator.
Why isn't it seeking balance in the unequal relationship between consumers and insurers or setting guidelines on nuts-and-bolt issues like vehicle valuations or imposing consumer-friendly rules like those in Malaysia? Are those matters outside of the scope of its vision or mission? Enough said.
I will now come down off my soapbox and answer your questions.
The answers are to be found in your policy or contract. I have a small problem: I do not know the name of your insurers. I will, therefore, have to generalise.
However, since there are many similarities between the contracts of the 10 companies that write motor insurance, any policy can do. Mine says: "We (the insurer) will indemnify you against loss or damage to the motor car and its accessories and spare parts whilst thereon."
That promise is not open-ended. It is limited by things that are excluded. The ones that apply to your case are: (a) depreciation, wear and tear, mechanical or electrical breakdown, failures or breakages and consequential loss; and (b) the excess (or deductible) that is stated in the contract.
Depreciation is the key word in the exclusion. It is a technical term used in accounting and economics.
The Dictionary of Insurance Terms, 4th edition-defines it as the "actual or accounting recognition of the decrease in the value of a hard asset (property) over a period of time".
Put another way, the word recognises the fact that the value of most types of property will reduce by use over the course of time.
Motor-insurance contract also describe how claims are to be settled. Policies usually say the insurer's liability - how much it will pay in the event of a claim - "shall not exceed the value of the parts lost or damaged plus the reasonable cost of fitting such parts".
Further, that liability "shall be limited to the reasonable market value of the motor car at the time of loss or damage but not exceed the policyholder's estimate of value (that appears in the policy)."
Market value is the price that a willing buyer would pay for an object purchased from a willing seller.
The first formula applies to claims when the vehicle can be repaired. The second deals with situations where repairs are uneconomical and the vehicle is written-off.
When the latter happens, the vehicle's market value, "at the time of loss," is calculated. That exercise is carried out by a professional who is licensed by the FSC and who operates independently of the insurer.
The phrase "not exceeding the policyholder's estimate of value" is the maximum that the insurer may pay. Note that the contract does not say that it is the amount the insurer will pay.
It is normal for some insurers to recover their policyholders' excess, loss of use and other expenses from the insurers of drivers who cause accidents like the truck driver who hit your car.
Finally, many thanks for raising the questions at this time, especially when the FSC is marking the first decade of its existence and questions are being raised about the performance of another regulator, the Office of Utilities Regulation. I hope that my friends at the FSC will take heed.
Cedric E. Stephens provides independent information and free advice about the management of risks and insurance. aegis@cwjamaica.com, SMS/text message to 812-7233