SHOW ME YOUR CAR, AND I’LL TELL YOU WHO YOU ARE…

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Since we are still on a break on product awareness, there is something that will be interesting for us to discuss this week.  This week, lets discuss your vehicle, and as the topic suggests, it is all about what details your vehicle has, that tells anyone if you are risk-conscious or not. The more you invest in reducing the chances of a loss for your vehicle, the better the risk score by the insurance company  and ultimately, the premium they charge you. This should be a relevant discussion considering that we are all financially pressed because of this “lazy to go” COVID-19 and looking for some savings.

What are the risk factors considered by insurance companies? When the premium is being calculated there are certain factors that are considered by the insurance company. They request you to complete a proposal form at the inception of the insurance policy. That proposal form has some questions that you are expected to answer truthfully. This is meant to understand the risk factors, and ultimately, the appropriate premium. Insurance companies differ in their approach in terms of the rating variables even in the same market. The examples shared in this article are not necessarily what you may experience from your insurance comany. The proposal form is therefore used to gather information for an assessment to categorise the  on the risk into some bands. The questions are aimed at knowing the driver and vehicle risk. In Lesotho, most insurance companies use the Vehicle risk factors to charge the premium.

What are the vehicle risk factors? Here is a list of the risk factors that are used by insurance companies. The engine power or capacity is a risk factor, and its because the faster the vehicle, the higher the chance of high impact when an accident occurs. Fatal accidents are generally associated with the high powered vehicle. Even good drivers are sometimes careless, and if it happens when the vehicle is in high speed the damages to the vehicle are likely to be severe and liability to other vehicles or third party property will be massive. Now if you approach an insurance company to insure a tractor and a bakkie, the premium charged to the two vehicles will be different. The tractor is likely to be a lower price than the bakkie and its because of the difference in the maximum speeds. One of the questions that you may find on the proposal form relates to whether the engine has been modified. The insurer will be seeking to price the risk correctly according to the horsepower and speed that vehicle does.

Accessories, such as alarm, ABS, Tracking Devices  Vehicles are a target for theft and other criminal activities. Suppose the vehicle is installed with accessories and gadgets that assist in preventing or scaring away the intruders. Some gadgets increase the rate of recovery if the event happens. When you install such devices, the risk co-efficient reduces, and as a result, your premium also reduces. The premiums are also affected by your historical loss experience. With such gadgets as the ABS and the tracking devices, the loss history tends to be fair and the premium rating as well. In Lesotho, we have companies that install vehicle tracking devices and alarm systems. One other useful addition to your vehicle is the smash and grab protection screen for the door glasses. When you bargain for premium reduction share this information with the insurance company  they will consider when pricing the risk.

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The age of the vehicle is a rating factor that is considered by some insurance companies, and this may come with cover restrictions as well. The older the vehicle, the more chances of a loss happening and the reason is simple, more mechanical breakdowns are associate with an ageing vehicle. Some insurers will prefer to give the third party liability cover only for vehicles that are more than twenty years. It is generally accepted that the value for a vehicle depreciate with age and as it advances in age the market value approaches close to nothing. You have, however, a possibility to agree with the insurer the value of an old vehicle and insurer it at agreed value. It is also essential to share your service records that can help with the risk acceptance and a fair premium. You may then have a question regarding the imported vehicles that are often at an advanced age when they are registered in Lesotho. Insurance companies still accept to insure these vehicles with a slightly higher price or altered insurance conditions. Further discussions with more detail will be done  in future.

Vehicle risk classification Insurance companies categorise vehicles, and this also comes with a premium variation. There is a distinction given to a commercial vehicle and private vehicle. The commercial vehicle group is determined by weight and capacity for some insurance companies. Depending with your insurer, you may need to check if your vehicle is classified correctly. This also affects the deductibles that you pay at the claim’s stage.  Commercial vehicles have a different rating from private vehicles. In certain circumstances, the difference may be blurred if the vehicles are rated as a fleet.

Type Of Vehicle  There is also a need for you to provide full details of the kind of vehicle. In the same category, the rating may differ because of the model and colour of the vehicle. In Lesotho, one of the largest insurance companies is moving towards the actuarial rating of risks, and the simple thing like the colour of the vehicle will give you a price difference. Did you know that a white vehicle will attract less premium than a black vehicle? The answer is simple, the visibility of the black vehicle during the evening is compromised and hence the chances of an accident are higher. It is the correct thing to do, we cannot all be priced the same for our different risk dispositions.

In conclusion, you have an opportunity to influence the premium that you pay. If you manage the risk factors associated with your vehicle, you will be able to get premium discounts. In a longtime in the insurance market the  vehicle age and type were the critical factors in pricing; however, with technology, this is shifting as the markets develop. In our next article, we can focus on the profile of the driver.

Amon Rupiya is an experienced insurance practitioner qualified with a Masters in Insurance and Risk Management. He writes in his personal capacity and views does not represent the company he is working for. Please note that the content provided in this article is intended as an overview and as general information only. Before making any decisions based on the information provided in this article, please use your discretion and seek advice from an insurance broker or agent. Feedback and questions send email to amonfield@gmail.com