Is A Flat Excess Always Better When It Comes To Car Insurance?

Let me be the first to admit that I’ve always felt way more comfortable with flat motor vehicle insurance excesses.
Who on earth wants to owe money on a R400, 000 vehicle and then still have to pay a 5% excess if they ever claim? Can you imagine paying R20, 000 if the car is written off? Now I know that one or two reading this won’t break a sweat while writing the cheque, but for others it could break the bank – and judging from the high numbers of expensive vehicles on the Gauteng highways all with rusting dents, I’d say that this includes a number of “affluent” people!

But don’t for a moment think that flat excesses on car and home insurance are the best thing since sliced cheese…

Remember two newsletters ago we discussed the loss ratio of one insurance company, which was sitting at 27%? The remaining 73% of their claims came from vehicle repairs! If 70% of claims is for minor repairs then it makes more sense to have a 5% excess structure than it does to have a flat excess structure. Maybe that’s why flat excess structure is becoming more and more popular with insurers?

Consider that R400, 000 vehicle after a minor bumper bashing.
Let’s say the cost of repairs works out at R50, 000.
On the 5% excess structure the calculation is done as follows:

  • R50, 000 x 5% = R 2, 500 excess

Not bad when you compare it to some companies which offer flat excesses of anywhere between R3, 000 and R 3, 500, is it? It only takes a couple of minor claims for that flat excess to hurt your pocket, doesn’t it?

A 5% excess structure is particularly well-suited for those with lower value motor vehicles.
Think of the guy with a R60, 000 Toyota Tazz…
If the car is written off he ends up paying three grand!
Remember with older cars, if the cost of repairs exceeds 50% of market value, insurers tend to write off. With newer vehicles, the ‘make or break’ point is closer to 70% (although these percentages aren’t set in stone).
In the case of our R400, 000 motor vehicle we’re talking about R280, 000 as that ‘make or break’ point.

Let me also point out that for high-end motor cars it often works out best to select a ‘waiver of excess’ option. For a small payment, the insurer waives the excess. But don’t for a moment think this is a ‘get out of jail free’ card. One too many claims, and the insurer will cancel this option.

When comparing insurance quotations, always look at the insured value of your motor vehicle and do the math.

If your car is written off, what’s the maximum excess you would pay with a 5% excess option and compare that to a flat excess option?

Go with the cheapest option, but watch out…
When it comes to the 5% option it always has a minimum excess amount (usually R2, 000!). Don’t think your R2, 000 claim will only cost you R100 (5% of R2, 000) as an excess!

Do this exercise right now…

  1. Haul out your existing insurance policy.
  2. Check whether you have a flat excess or a percentage based excess.
  3. Contact us and request quotations with different types of excesses.

Remember, there are three possible scenarios when it comes to excesses:

  1. A flat excess.
  2. A 5% compulsory excess usually with a minimum of R2, 000, or
  3. No excess at all

Remember that many companies will waive the excess on theft or hijacking IF the vehicle is fitted with a vehicle tracking system?

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Until next time.

The InsuranceFundi Team

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