Everything you need to know about motor insurance and making a claim
Almost everyone knows something about motor insurance ‚ if only because any vehicle driven on public roads must have some kind of insurance cover.
The Road Traffic Act requires that all drivers must meet any liabilities they incur should they injure other people or cause damage in an accident.
The person who is injured is known as the third party. The first and second parties are the car driver and their insurance company respectively. The third party may be a pedestrian, a passenger in the car driven by the insured person, or the driver or a passenger in another vehicle.
The injured third party can claim compensation from the driver of the offending car. The driver then relies on his or her insurers to pay the other person’s claim.
Different types of motor insurance policy
The law requires drivers to have insurance against third party injury or damage claims and that the insurer must provide the policyholder with a certificate of motor insurance. However, most motor insurance policies provide far more extensive cover than this.
There are three main types of cover available in the UK today:
1. Third party
As well as covering the insured person when driving on public roads, this type of policy also applies on private property. It covers third party claims and provides protection against other legal liabilities. Passenger indemnity, for example, provides cover against the possibility that a passenger in the car may cause an accident perhaps by carelessly opening the door and knocking a cyclist over. It also provides cover against certain legal costs.
2. Third party fire and theft
In addition to the protection offered by third party insurance, this type of policy also covers loss or damage to the insured person’s own car as a result of fire, theft, or attempted theft.
3. Comprehensive
This is the widest form of cover available, although it cannot protect against every conceivable risk. In addition to the covers offered by third party fire and theft policies comprehensive policies also protect in other valuable ways. The most important of these is accidental damage cover. Comprehensive policyholders can have their own damaged vehicle repaired or replaced. These policies also include personal accident insurance, providing payments for death and specified serious injuries ‚ such as the loss of a limb or sight. Such payments are usually restricted to the policyholder and their spouse. Comprehensive policies may also cover small amounts of medical expenses cover for anyone in the insured car who is injured in an accident and for loss of (or damage to) personal effects in the car.
Different types of vehicle
Insurers draw on statistics and on their experience to create special policies for different types of vehicle on the roads ‚ for example, private cars, and motorcycles (including motor scooters and mopeds). Commercial vehicle insurance covers all vehicles used for transporting goods and passengers for commercial purposes, including hire cars and taxis. The insurance of agricultural and forestry vehicles and other specialist vehicle types covers a whole range of machines. Then there are vehicles constructed for specific purposes such as mobile cranes, earthmoving equipment and ambulances.
Motor traders
Motor traders pose a different type of risk and therefore need specialised insurance policies. There are three basic types of motor trader policy.
1. Road risks
Covers the trader for any vehicles they own or which are in their custody or control while they are away from the premises of the insured business.
2. Internal risks
Covers traders only for liabilities incurred on their own premises.
3. Combined road and garage
Cover traders for both road risks and internal risk as well as a range of other risks.
Insurers will only issue motor trader policies to traders with their own premises. Traders working from home may well have difficulty getting cover.
Calculation of premiums
The cost of motor insurance claims varies widely, depending on the risks involved. Based on the claims statistics they compile, motor insurers attempt to base premiums on the degree of risk. This ensures fair treatment for all policyholders.
There are four main factors that need to be taken into account when calculating private car insurance premiums. These are:
* the type of car
* the driver or drivers
* the use to which the car will be put
* the district in which it is kept
Type of Car
Insurers divide cars into 20 groups. The higher the group number, the higher the premium. The groups are based on factors such as the cost of body parts, the ease with which the car can be repaired, its value when new, its top speed, its acceleration, and the degree to which it is theft resistant. Sports and high-performance cars are more expensive to insure because statistics show they are involved in more accidents and cost more to repair than other types of cars. That gives them a higher group rating than, for example, a small low-powered saloon.
Drivers
Information about drivers affects the premium significantly. Important factors include the driver’s age and their driving experience. Young drivers, particularly those under 25, pay a higher premium because statistics show they are far more often involved in accidents. Young men have more insurance claims than young women. This means that some insurers will charge young women lower premiums than men of the same age.
The premium may also be affected by drivers’ occupations. Other relevant factors include the driver’s accident record and any history of convictions. Drivers convicted of a drink driving offence will, when they come back to driving, have to pay a very high premium for a policy providing only limited cover
Use
The use to which a car is put also affects the risk. Most insurers recognise three main classes:
• use for social domestic and pleasure purposes and use by the policy holder in person in connection with his or her business or that of his or her employer or partner
• use for social, domestic and pleasure purposes and for the business of the policyholder or that of his or her employer or partner
• all of the above, plus commercial travelling
All these cover types exclude the use of the car for racing, competitions and rallies and for carrying passengers for hire or reward. However, taking money from passengers in return for a lift (known as car sharing) is allowed, as long as the lift is not part of a business arrangement.
District
The risk is also influenced by the district in which the car is kept. Areas with a high density of traffic are more risky than remote country areas. Some areas have a significantly higher-than-average level of car theft or vandalism. So insurers divide the country up into a number of categories of area according to their experience of the risks involved. In some cases theft may not be covered where a car is left in the open overnight.
No claim discount
Motorists who go for a year or more without making an insurance claim may qualify for a no claim discount on their basic premium. Most insurers offer a reduction of around 25% after one claim-free year. This discount rises, year by year, to 60% or 65% after four or five years. If the motorist has to claim on their own policy they may lose some or all of their discount. The discount is allowed for not making a claim and the question of blame for any accident is not relevant. Therefore if motorists make a claim they will lose part of their discount (even if they are not to blame) unless their insurers can recover their claim payment from another motorist who is at fault.
Many insurers issue special policies which allow, say, two claims in three years without the no-claim discount being affected. These “protected discount” policies, of course, cost more to buy.
The excess
An excess is an arrangement whereby motorists meet the first part of a claim for any damage to or replacement of their car. The amount of the excess is set out in the policy.
Sometimes an excess will be agreed with the motorist on a voluntary basis in return for a reduced premium. Sometimes they will be imposed by the insurer. For example compulsory excesses are often imposed on learner drivers or those who are young or inexperienced. A motorist with a poor claims record may also face a compulsory excess.
These excesses cut down the cost to insurers of small claims and therefore benefit all policyholders.
Motoring abroad
All private motor policies issued in the UK extend automatically for use in all EU countries, and certain other European countries. Cover is limited, however, to third party liability only.
To enjoy the full level of UK cover, such as fire, theft and accidental damage, motorists need to tell their insurance company before departure. The company will then arrange to extend cover during the period of the visit.