Insurance Helpline With cedric Stephens

Question: I went to renew my motor policy recently. Since the car was one year older, I decided to reduce the insured value. I was told that it was not possible to do so without a valuation. I protested and was informed that if I made a request in writing I would not need the valuation. I signed a waiver and then paid the premium. Just before I left, I was given a letter stating that I needed to have a valuation within 30 days in order to validate my insurance. Do I really need to pay for a valuation to insure my car for less than I did one year ago?

- S.M., Kingston 10.

Answer: Your encounter with the insurance company seems unreal. You sign a waiver to avoid the expense of a valuation and then pay the premium. In the real world, these are some of the things that make an agreement. And yet, minutes later, you are handed a letter giving you 30 days to get a valuation to 'validate' the insurance.

Those actions do nothing to generate trust. If the transaction took place in such a topsy-turvy way when you were paying money, can you imagine the hassle when insurers have to pay a claim?

It is conventional wisdom that motor vehicle valuations are good. They prevent fusses about the size of the payouts when vehicles are wrecked. This happens in only very few cases. A valuation has a very short shelf life. The 'best by date' expires long before the 12-month period of insurance. Furthermore, most claims are for partial losses, not write-offs.

Who gets the benefits from valuations? Claims for motor vehicle write-offs are settled on what these policies say - not on the valuation estimates. An extract from the policy of one leading insurer confirms this.

It says: "The amount we will pay (if your car is lost, stolen or damaged): The most we will pay will be the lower of the market value of your vehicle; or the amount you insured your vehicle for. We will not pay the cost of any repair or replacement that improves your vehicle beyond the condition it was in before the damage occurred."

Reference point before accident

Note the word valuation is not even mentioned. Also, that the reference point for market value is immediately before the accident. If this turns out to be less than the amount in the valuation, the smaller amount will apply. On the other hand, if the vehicle was insured for $2.5 million, but the market value was only $900,000, the claim would, once again be settled on the lower figure.

Another policy says the same thing using different words. "The insured's estimate of value shall be the maximum amount payable in respect of any claim for loss or damage."

In other words, the fact that insurers have asked for a valuation does not bind them to use it when a claim is being settled.

The two companies whose policies I have referred to control about 44 per cent of the market. It is, therefore, quite reasonable to infer that their contracts are not very different from those of other insurers.

Insurance contracts are stacked in favour of insurers. What most persons call insured value is really an estimate of value. Claims for write-offs are settled on market values at the time of the claim.

The estimate of value - the insured's or the valuator's - will only be used if it matches the market value.

Most persons do not know this. They do not read their policies. They conclude that the estimate of value will be used in the event of a write-off.

They fail to see that because of their short shelf life valuations are of limited use to insurance buyers. Valuations benefit insurers. Their main purpose is to provide an easy way for insurers to set the premiums for comprehensive policies, at the expense of buyers.

Frankly, I do not believe that it is obligatory for you to spend a couple thousand bucks to get a valuation for your insurer. But guess what? I do not work for or own an insurance company. Maybe I am wrong.

This column strives to maintain balance between the needs of buyers and insurance companies. I would, therefore, welcome a challenge from the sector on this (or any other) subject.

Cedric E. Stephens provides independent information and advice about risk and insurance. For free information or counsel, email the Business Editor: business@gleanerjm.com, or Mr. Stephens: aegis@cwjamaica.com.