The fallacy of 'comprehensive' auto insurance coverage
Published:Sunday | March 17, 2013 | 12:00 AM
Insurance Helpline With Cedric Stephens
QUESTION: Why is it that local insurance companies do not offer comprehensive insurance on 'old' vehicles in mint condition? I had a 13-year-old car that was in tip-top condition. It was treated as though it was a defective piece of junk that was a huge risk for other motorists. Are there any rational reasons why older vehicles are treated this way?
HELPLINE: Regular readers of this column know that I do not like the word comprehensive, particularly when it is used in connection with insurance policies. This is because many persons mistakenly interpret that term to mean that contracts that are described this way offer protection against all kinds of losses.
Comprehensive motor policies - like virtually all contracts - exclude things. The protection they offer is limited and often quite precise.
Vehicles insured under the comprehensive label are, typically, protected against loss or damage caused by: (a) accidental collision or overturning; (b) fire, explosion or lightning; (c) theft; (d) malicious acts; (e) while being transported; and (f) flood, hurricane or 'other convulsions of nature'.
These six items are referred to collectively as 'damage'.
Liability for injury to persons and/or damage to their property which arises from the use of the insured vehicle on public roads, which is legally mandated under The Motor Vehicles Insurance (Third-Party-Risks) Act, are referred to collectively as third-party liability risks. The latter are the second major building blocks of a comprehensive policy.
Liability risks are also sold separately in what is called a third- party policy. The market also combines items (b) and (c) of the damage section of the comprehensive policy with the liability risks and, predictably, sells it as Third-Party Fire & Theft.
Do your questions apply to the part of the comprehensive policy that provides protection against damage or do they apply to the combination of damage plus liability? My suspicion is that they apply solely to the damage part.
It would be an entirely different situation if an insurer refused to offer insurance against third-party liability risks on a 13-year-old vehicle with a valid certificate of fitness solely because of its age when such coverage is required by law.
Insurers are, however, on firmer ground in relation to the damage part when they exercise their right to decline because of the age of the vehicle. They pick and choose whether to offer 'damage' coverage based on many risk factors.
Make, model, age, use and value are among those that apply to the vehicle. Age, gender, accident history and occupation are some that apply to the persons who drive. Are insurers' actions in relation to 13-year-old vehicles discriminatory within this context and how contracts are written especially with respect to claims involving vehicle damage?
Buying replacement parts for motor vehicles can be difficult at the best of times. Parts suppliers are driven by the profit motive. Local dealers and/or parts suppliers stock items of popular models that have a quick turnover.
In the case of other, items where the demand is low, orders are placed with overseas suppliers only when there is a demand. As vehicles get older parts become harder to obtain and, as a result, are more difficult to fix in the event of damage. Motor policies recognise this.
They give insurers the option where parts are not available "to pay in cash the amount which is payable in respect of any such parts ... the price quoted in the last catalogue or list price".
Each insurer makes its own decision when to stop offering damage coverage to older vehicles.
I made an interesting discovery in my search to find answers to your questions. The Jamaica Classic Car Club has aligned itself with one local insurer which, according to its website, offers "quality services and value- added products ... for several years now".
Some of its members own vehicles that are almost 100 years old. A company official informed me that the coverage afforded to members is limited to third-party liability risks and subject to the vehicles being driven 'x' days per annum.
Cedric E. Stephens provides independent information and free advice about the management of risks and insurance. Email aegis@flowja.com; SMS/text message to 812-7233.