Insurers will tell you the excess in your policy is there to protect you from spurious claims, or as a method of reducing the premium. For policyholders it is often infuriating and difficult to understand.
One of the most confusing and misunderstood matters in Short Term Insurance is an “Excess” or “First Amount Payable” that applies in the case of an insurance claim.
Many policyholders struggle to understand what an insurance excess is and why they must pay it towards settlement of their loss or repairs. They also often want to know how they can get rid of it, or get their hands on the funds if they had to pay it to get their vehicle repaired and they were not to blame for the accident that resulted in the insurance claim.
We would like to provide some clarity on the issue.
What is an Excess or First Amount Payable
An excess is the amount payable by you in the event of a loss or incident and is the uninsured portion of your loss. Bottomline is that it is a premium portion payable only by those involved in an incident and wants to claim for it, or to make good the covered loss in one way or another. It helps to reduce the premium and make it more affordable. If it wasn’t for the excess the insurance premium would have been a lot higher.
When you submit a claim, you will have to pay an excess to the repairer of your vehicle once the repairs have been completed and before you can take delivery of your vehicle. Because it is an uninsured portion of the loss the payment arrangement is between the repairer and the policyholder.
An excess varies with different policies, circumstances, loss types and depending on whether you have chosen to have a voluntary excess, flat excess or an excess waiver. Some policies may even have different excess layers which means the excess increases with every additional claim that is made during an insurance cycle of 12 months. Every excess type and amount may have a different impact on the payable premium.
An excess waiver is an optional insurance extension that protects you against any excess charges you may incur if your vehicle is damaged or stolen.
Electing to have an excess waiver will increase your insurance premiums as the potential payout in respect of a claim will increase proportionally with the excess amount that has been waived.
Flat (Fixed) Excess
A flat excess is a set (fixed) amount agreed between the Insured and the Insurer. So, when you submit a claim, you will have to pay a fixed excess amount to the repairer of the vehicle once the repairs have been completed.
Electing to have a flat excess may increase your insurance premium as it might be less than the excess amount based on a percentage of the loss.
A voluntary excess is agreed with the Insurer and is payable in addition to your other excesses. Electing to take a voluntary excess should reduce your insurance premium as the risk exposure amount is reduced in relation to the other excesses plus the voluntary excess selected.
The policyholder must be careful when deciding on a voluntary excess as it normally has a material impact on the total excess payable by the client due to its cumulative effect. It is nice to enjoy the lower premium that the option offers, but to pay a high excess may come as a nasty surprise at the time of an incident.
Most insurers will charge a higher compulsory excess for young and new drivers as they are statistically more likely to claim than older more experienced drivers.
On the other hand, the excesses payable by senior policyholders eg. retirees, might be a lot lower or even have no excesses at all, as they are regarded a statistically lower risks, contrary to popular belief. In these cases, a voluntary excess might be of great benefit.
Many policies have different levels of excesses for different types of claims, so check your policy carefully. For example; windscreen claims are frequent and at a low cost, therefore many insurers charge a lower excess for windscreen repairs as opposed to accident claims. Chip repairs to windscreens might have no excess at all and a voluntary excess does not normally apply to windscreens.
The most common question with regards to excess is, “Why do I have to pay an excess if the accident was not my fault?” Unfortunately, you are always liable for the excess, since the insurer does not use “blame” or “guilt” as criteria in determining whether you need to pay the excess. You enjoyed the lower premium over a period and the excess is only payable when you suffer a covered loss.
If you are not at fault the excess amount may be claimed back from the guilty (other) party. Regrettably, this can take up to three years, especially if the guilty party does not have insurance.
The insurer has the right to make the full recovery from the guilty party in the Insured’s name in terms of the Subrogation Clause of the policy. This recovery will include the excess that the Insured had to pay, and they usually begin the recovery process soon after the loss has been settled in one way or another.
The Insured should not prejudice the Insurer’s recovery in any way. This includes but is not limited to admitting liability and accepting any payment in terms of their excess at the time of the incident or at any time thereafter.
Unable to make a recovery
In some instances, the Insurer will be unable to make a recovery against the third party for reasons such as:
- When no Third-Party details were submitted, or the details are incomplete or wrong
- The guilty party cannot be traced
- The guilty party does not have any income or assets to attach
- The legal costs outweigh the potential recovery costs (including the excess amount)
- The merits of the claim do not justify the recovery of the excess.
Most insurance companies have a Legal Recoveries Section that will do their utmost to recover the excess free of charge. If the insurer is successful with the recovery you will be refunded your excess or a portion of it in relation to the amount recovered. The insurer is under no obligation to recover the excess.
The Small Claims Court is an alternative option available to the insured to recover the excess from another party if the insurer is not going to pursue the recovery. If the insured is a private individual, the claim is less than the prescribed amount as set by the Small Claims Court, and the Insurer has given its consent to the insured to effect his own recovery, then the Small Claims Court is the cheapest and most efficient way to go although there is no right of appeal after a verdict against.
It is imperative to structure the excess in such a way that you will be able to afford it should the need to claim arise, and to understand the full financial implications of the excess when the insurance agreement is made between you and the insurer.
Do not wait until you suffer a loss to discover the impact of the excess on your finances.
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