Question: I'm 25 years old. I'm saving towards purchasing my very first car. However, I'm a bit confused about the process of insuring it. A hefty price tag seems to go along with that process. How can I ensure that I get the best coverage available at the lowest price? And what benefits are there to using an insurance broker for this purpose? I hope that you'll be able to provide some clarity on these issues.
- T.K., Kingston.
Answer: The questions you posed had me running for my scrap books. And there, sure enough, my instincts were proven to be correct. Nearly 19 months ago a UTech graduate wrote me along the same lines. The exposure that some members of your generation have had at the CXC and tertiary levels to insurance have made them far more savvy than persons in my group at similar ages. Entities that exploited the ignorance of consumers in the past had better watch out!
Buying motor insurance and computers have similarities and differences. The more research you do before making a decision, the fewer the surprises. Wrong insurance choices almost always come to light when something unpleasant happens. At that time, it is too late to correct errors. In the case of computers, on the other hand, decision feedback is more immediate. New equipment failure triggers the warranty.
MOTOR INSURANCE BASICS
Let's examine a few basics before discussing the matter of price. Motor insurance is required by law. The Motor Vehicles Insurance (Third-Party Risks) Act sets up a system to ensure that victims of accidents on public roads are compensated up to certain minimum limits. The amounts are (a) $200,000 per person for bodily injury and $1,000,000 any one accident and (b) $250,000 for property damage. Owners and drivers of vehicles need to have coverage to pay for these amounts in the event that they are legally at fault when accidents occur.
Two other points should be borne in mind in relation to the Act. Non-compliance with the law will lead to police prosecution. Secondly, the limits in the law are peanuts. Local court awards for serious personal injury often run into the millions. A sanitation worker was awarded $5.5 million for the loss of his legs a few years ago.
Consumers have choices. There are now 11 companies that offer motor insurance (see FSC website details below for more information). All of them are not equal. This applies to things like what their policies cover, their financial strength, the speed in settling claims, how they rate on service and the premiums they charge. You can start the process checking the "old time" yellow pages. After that exercise try get a feel for each company. Visit their web sites. I would not to deal with those that did not have one. Finally, if you need more basic information try http://www.ezinfordirectory.com/carinsurance. Even though it is not written from a local context it provides information that you can use.
BUYING THROUGH AN INTERMEDIARY
Brokers and agents are in business to make things easy for consumers. They should guide you through the buying process. As a first time consumer they can help you get the best deal - based on the criteria listed in the previous paragraph - and save many hours if you were to do the work your self. Like other professionals sometimes they forget why they are in business. Your job is to remind them who calls the shots. If they fail to offer you a range of choices and stress only price find another broker. If you pay beer prices that's what you'll get, not vintage champagne. Bear in mind also that in law a broker is the agent of the buyer. The agent is the insurer's rep. You will have to decide which of the two should be in your corner.
Factors Affecting How Much You Pay and Save:
Many factors affect the size of the premiums that you pay. Some of these include: age (drivers under 25 are considered greater risks than those older); gender (women are statistically safer drivers than men); driving violations; vehicle type; accident claims; occupation; years of driving experience; business use; anti-theft devices and type of coverage (the so-called comprehensive being the most expensive followed by third party fire and theft and third party).
These rating factors can be used for two purposes. One could be to help you short list broker candidates. If, for example, the person you spoke with identified all 10 items, you could have assurance that he or she had attained some level of competence. A few of the factors can also be used to help you save money. A really good intermediary can show you the way (see http://www.fscjamaica.org/insurance for list).
Best of luck.
Cedric E. Stephens provides independent information and advice about the management of risks and insurance. If you need free information or counsel to help you solve a problem write to The Financial Editor or contact Mr. Stephens directly at aegis@cwjamaica.com.
