New vehicle duty having bad impact on motor claims

Cedric Stephens, Contributor

Question: I bought a new 2009 model vehicle for J$4.1 million in January 2010. I insured it for the same amount. The policy was renewed 12 months later for the same amount. I can't remember if I did a new valuation as is sometimes required by the insurance company on renewal. The vehicle was involved in a collision in June 2011, and was written off. The insurance company is now offering me J$2.85 million to settle my claim. They say the value of all vehicles has dropped considerably because of the new duty regime on motor cars. The offer is less than my loan at the bank. I take issue with the company. Surely they must have been aware of the impact of the new duty structure. They did nothing to advise their clients. It is also very likely that they are still insuring vehicles based on the old duty. Would it help to get an independent assessor to value my vehicle?

HELP-LINE: The short answer to your question is yes. Get a second assessor to undertake a second valuation. I have it on good authority - from president of the Loss Adjusters Association of Jamaica (LAAJ), David McKay - that a new motor vehicle duty structure went into effect on May 2.

Finance Minister Audley Shaw presented ministry paper Number 33/11 to Parliament in April. According to the LAAJ head, it reduced the values of "2010 models by six per cent to 15 per cent".

You have not said whether your insurer's proposed offer of settlement was computed after or before the deductible, which I assume would be five per cent, or J$205,000. Even if it were after, the pre-accident value of J$3.155 million would still be eight percentage points higher than 15 per cent.

McKay's letter

Mr McKay's remarks were made in a letter dated May 4, 2011. It was addressed to insurance companies, brokers, and financial institutions - presumably commercial banks and other lending institutions. Here are some more excerpts from the letter:

"Based on information that we have gathered so far, we have noted a reduction in dealer prices for new motor vehicles ranging anywhere from 7.0 per cent to 25 per cent.

"Vehicles that are still allowed to be imported - up to four years old - have been affected the most. The percentage reduction is the highest on new, 2011 model vehicles, and decreases the older the vehicle gets", based on engine size (cc rating) and type of vehicle.

"The depreciation factor being applied ... on newer motor vehicles has been reduced significantly to ensure that older vehicles are not undervalued ... . We would suggest that consideration be given to revaluing 2007 to 2011 model vehicles at this time to ensure that their values are consistent with current market conditions."

The association, in my opinion, has done an excellent job in analysing and explaining the impact of Government's new policy measures on motor vehicle insurance consumers. In this age of instant communication, it is disappointing to note, based on your experience and mine, that the information that was so carefully prepared by the association is not being proactively used to help consumers avoid problems like yours.

Negative impact

Mr Shaw has portfolio responsibility for the Financial Services Commission (FSC) among his many duties as finance minister.

The FSC regulates the insurance industry. Is the commission aware of the negative impact of the new motor vehicle duty regime that was introduced on buyers of motor insurance? What steps has it taken, at the very least, to minimise those impacts on ordinary folks like you and me?

In an article dated August 7, 2011 - 'Time for the FSC to be more consumerist' - I criticised the commission. I wrote that "nuts-and- bolts issues" like vehicle valuations were not outside the scope of its operation. I suggested that it follow the example of its counterpart, Bank Negara Malaysia. I expected a howl of protests.

One reader - morpau4@hotmail.com - described Malaysia as a "3rd world country" and stated that Jamaicans/Malaysians "are lucky".

The silence has been deafening! The fact that the LAAJ chose not to send a copy of his letter to the industry regulator speaks volumes.

Many thanks for bringing this matter to public attention and for giving me another opportunity to 'jook' the FSC into charting a new course. I sincerely hope that this article will help you to get more money from your insurers, and to, at least, repay your bank loan.

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