May 3, 2009
Car cover: Cheap is not always best
Going for low-end and no-frills insurance may seem a cost-saver, until you get into an accident
By Lorna Tan
For many of us, paying for insurance protection is often seen as an unnecessary cost rather than a service. I'm no different. I try to get the cheapest deal with the best cover, or what I think is a suitable cover without paying an arm or a leg for it. Buying car insurance is one such example.
It does not help that the General Insurance Association (GIA) requires vehicle owners to report all car accidents to their insurers within 24 hours or by the next working day, as of last June. It does not matter how minor the accident is, and the requirement applies even if there is no obvious damage to the vehicle.
Personally, I find it troublesome to be subjected to the requirement if the accident is minor, involves no injuries and can be settled amicably between the two affected parties.
Despite the unfavourable feedback from some motorists on the new motor claims framework, GIA was adamant that the new procedure should not be taken lightly. Not complying with it will result in penalties, including the loss of 10 percentage points on your no-claim discount (NCD) and the risk of having your claim prejudiced or declined later by insurers.
This tough stance was the latest attempt by the insurance industry to curb runaway claims, which drove motor underwriting losses to an all-time high of $214 million last year.
GIA's rationale is that people are less likely to lie or have less chance to collaborate with workshops to submit inflated claims within the first 24 hours of an accident.
Last month, I had a taste of what it was like to be involved in an accident under the new framework. The accident occurred on the evening of April 9, the Thursday before the Good Friday public holiday. I left my office at Toa Payoh North at 7.45pm and was heading for a church service in Zion Road, off River Valley Road. I was driving my husband's Jaguar.
As I was driving along Braddell Road towards the Central Expressway, a sport utility vehicle (SUV) in front of me - a Toyota RAV4 - stopped suddenly. I braked immediately, but it was too late. I struck the SUV's rear with a loud bang, and my body jolted forward.
I was quite dazed. For a few minutes, I froze in my seat. I was not keen to get out to inspect the damage to the Jaguar. When I finally did, my heart sank. The bonnet was badly dented and the lights were damaged. There was some liquid dripping from the front of my car which made me wonder if it would spark an explosion. The Toyota had a dent behind.
I called my husband, who prompted me to contact a towing firm. Back in the driver's seat, I realised that my car had a sticker from my insurer, American Home Assurance (AHA), with a 24-hour hotline. The comforting voice on the other side of the hotline helped to calm my nerves. A tow truck was arranged. As the following day was a public holiday, the hotline officer advised me that I had to report the accident by Saturday at the motor workshop where the car would be towed to. He also asked if I could take some pictures of the accident scene and of both vehicles.
The evening traffic along Braddell Road was very heavy. Both the Toyota driver and I decided that it was better to drive our vehicles to the carpark nearby to wait for the tow truck, which appeared after about 15 minutes. Before my car was towed away, the Toyota driver kindly reminded me to remove all valuables like CashCards, parking coupons and house keys from the car. He explained that he was forced to brake suddenly as a taxi had swerved into his lane abruptly. We exchanged particulars.
On Saturday, I duly reported the accident at the workshop. It turned out to be quite painless and was completed in five minutes. I had with me my driver's licence, vehicle registration card, original insurance certificate and a letter from my husband authorising me to do the reporting. I found out that my photos of the accident were not required unless there were disputes. Instead of a physical inspection, I learnt that the workshop would e-mail pictures of my damaged car to the surveyor.
The repairs took a while, and I did not get my car back till last Wednesday. The estimated repair bill was about $10,000.
In Singapore, it is compulsory to buy car insurance. My husband had let me pick the firm to insure the car with and the specific cover. When I was renewing his motor policy in January, I chose to pay as little as I could for the best cover. I had toyed with the option of paying an additional premium to protect his NCD but decided against it, thinking that the chance of claiming was slim based on our good track records.
To recap, this is how the NCD works. If you have not made a claim for a year, you are entitled to an NCD on renewal, which reduces the policy premium for the following year. This means that after five years of zero claims, it is possible to enjoy an NCD of 50 per cent (which my husband did), which effectively halves your motor premium the following year.
Now, I wished I had paid a higher premium to buy an optional 'NCD protector', which is a cover against the loss of the NCD. This would have ensured that my husband's 50 per cent NCD was protected in the event of a claim. While AHA does not offer this benefit, some insurers such as HSBC and Income do.
Another benefit that I wished I had bought was for the use of another car while my husband's was in the workshop. This would have added only another $95 to the annual premium.
Without the 'NCD protector' and because of the current claim on his policy, my husband can expect a reduction of his NCD by 30 percentage points to 20 per cent come next year's renewal. He can also expect a possible loading on the renewal premium, depending on the amount of the claim and the degree of the driver's liability in the accident.
I will definitely weigh the consequences of such decisions more carefully in future. Cheap is not necessarily the best.
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