By Cedric E. Stephens, ContributorQuestion:
I JUST bought a Cadillac Escalade SUV. Its $9 million price tag puts the premium into six figures. The excess, in the event of an accident, will be $250,000. I plan to carry the collision damage risk and buy third party insurance. I am not worried about partial losses. The biggest risk is if the vehicle were to be totalled. Is total loss the only coverage available?
BR, Kingston 5
Answer:
I will make some general comments before tackling the question. Many persons tend not to place any importance on insurance until it is too late. They look at it in isolation after the fact not before. As a result, they end up paying more than is necessary and with fewer choices.
One way to save money on car insurance over the long term is to find out about the cost before buying the car. Premiums are influenced to a very large degree by the type of vehicle.
Only one insurer of the 13 companies that write motor insurance offers total loss coverage. Their 'offer', however, is more on paper than in reality.
Section K, pages 13-14 of their motor vehicle policy, speaks to 'Total/Constructive Total Loss'. It spells out in clear terms the basis of settlement in the event of these types of losses. When I contacted senior officials of the company to get details of the costs, they were ignorant about it. No one knew what level of discount would be offered if a customer were to assume the collision damage risks you are considering. This is in spite of what their policy says. It seems that the decision to write the coverage was abandoned mid stream.
There are good reasons, both technical (that is, insurance) and economic why total loss only coverage insurance has not seen the light of day:
Insurers cannot properly estimate the chances of total losses for your type of vehicle, given the small numbers of units in the population of motor vehicles.
In the absence of loss data, insurers cannot set premiums for consumers like you.
The low demand for coverage makes it impossible to specify a rate that will be sufficient to pay for losses, cover expenses and yield a profit.
There are other means for you to assume part of the damage risks and transfer part to insurers.
Since total loss only coverage is not available locally, here are two options that I suggest you investigate. Contact a firm of insurance brokers who have access to the Lloyd's market. Ask them to try buying total loss only coverage in that market.
Insurers there are far more creative and flexible than the ones we find here. Chances are that if Lloyd's cannot provide coverage at a reasonable price then no one else can. If you get the coverage you need overseas, buy third party insurance from a company here.
Since you are not worried about partial losses, ask your broker to obtain quotations for different levels of excess. Typically, standard excesses range from 5-10 per cent of the vehicle's estimate of value.
See what discounts insurers would allow off the premium if you agreed to carry, say between 12.5 to 25 per cent. This would mean that you would assume the first $1.25 million to $2.5 million of damage claims to your vehicle instead of $250,000. Losses in excess of those amounts would, of course, be borne by insurers.
After you have looked at all four options comprehensive, self insurance, total loss only, and partial self insurance you may well decide to go the self-insurance route. This way, I believe you will end up with a better decision since you have studied several alternatives.
Cedric Stephens provides advice on risks and insurance. If you need free information or advice to solve a problem, write to The Financial Editor or contact Mr. Stephens directly at aegis@cwjamaica.com.
