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Motor Insurance
Wednesday, August 1, 2007
Is it or isn’t it? Does it matter?

We had many responses to our Car Rental cover story (published last issue – see Insurance Times & Investments Vol 20.6 July 2007 page 16), which was also published through our web site, ITInews Online. Many responses supported our suggestions, and we can confirm that the Financial Services Board is definitely launching an intensive probe into the Car Rental Industry.

The main task will be to unravel the true nature of a host of unsatisfactory business practices that have developed in the industry over the years. How complicated the reform process will be – for reform will be introduced – may depend on whether or not it can be proved the car hire companies charge insurance. If proven then a great deal of practices can be dealt with through existing legislation. Otherwise we may well see new laws having to be drafted.
The question of whether they do charge insurance is a matter of legal interpretation. Those for or against believe in their views with almost religious fervour.
As a counterpoint to Professor Robert Vivian’s dissertation, here is one response we received on the subject from Wally Walton of Insursolutions. He puts forward the following reasons why car hire companies’ so-called waivers are in fact insurance, based on his analysis of car rental agreements..
The essentials (distinguishing features) of an insurance contract are:
• A term that the insurer will compensate for a loss (they will pay for damages less your waiver amount or excess);
• A term that the insured will pay a premium or a term making the contract dependent on payment of a premium (they even call it a premium);
• A term making the insurer’s obligation subject to an uncertain event (the future possibility that you may have an accident or suffer a theft).

It seems to me the car rental agreement complies with all three.
“There also seems to be a strong case for ‘insurable interest’ on the part of the hirer as he/she is responsible for any damage or loss,” adds Mr Walton.
The question is how easy will it be for a hirer to substitute his own insurance in place of the car rental company’s? “We have in the past arranged this cover with one of the insurers who have been swallowed up in the merger activities of our industry,” he says.
“I think what is more frightening about the contract we enter into (and I presume ‘caveat subscriptor’ will apply)” are some of the terms such as:
• One car accident (no other object involved) - they can at their discretion charge you the full amount of damages or double the excess;
• No cover for your negligence (this can mean a third party’s damage as negligence is needed to find an action in delict;
• No cover if not reported within three hours and a claim form completed within 24 hours
• Driving on a ‘road that was not suitable for that vehicle as determined in the sole discretion of the company.’ This used to state ‘gravel roads’ but is now even worse as a road may deteriorate due to a storm during your trip, to say nothing of gradual wear and tear.

It is also interesting to note that Avis for example uses the words, “He shall co-operate with the company and its insurer in the investigation” in clause 13.1.6.
Asks Mr Walton, “If they have an insurer is it then not insurance?”

Whatever the outcome of the debate, the authorities can still make a determination that car rental companies must stop selling wavers. They could even pronounce waivers as being insurance, simply by adding a definition to the Short-term Insurance Act 1998. They did that with motor warranties. By Nigel Benetton

Copyright © Insurance Times and Investments® Vol:20.7 1st August, 2007
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