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Category:
Insurance
News /
Short Term
Insurance /
ITInews
/ July 2007
Car Rental Insurance To Be Investigated
Waive good bye to your money ...
All
car rental companies include in their daily rates a charge for
insurance, referred to as ‘Collision Damage Waiver’ (CDW) and ‘Theft
waiver’ (TW), intended to protect the client in the event he has an
accident with the rental car, or it is stolen.
 CDW
is sometimes called super damage waiver (SDW), while theft waiver is
also variously called ‘theft protection’ or super theft waiver (STW).
By
paying for the waivers clients can limit their exposure to a
so-called ‘excess’, say of R1 800 or no more than R3 000.
Clients are rarely aware of the additional waiver fee as they are
usually presented with an all-in rate, say, of R265 a day, plus a
contract fee of R25. Fuel costs are additional to this.
An
analysis of the estimated total of R290 (aside from the fuel charge)
reveals the insurance bill is R153 per day, or about 53% of basic
costs.
Now
this begs several questions:
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If car rental companies are charging insurance, isn’t this
illegal in terms of the Short-term Insurance Act 1998, which
requires that such businesses be licensed to operate as
insurers?
-
If clients are being charged insurance then they should be
afforded the appropriate advice. It is alleged that in all
instances no car rental reservations clerk is licensed in terms
of the Financial and Intermediary Services Act 2002 to provide
advice. Isn’t this also illegal?
-
If clients have no option but to buy the insurance from the
relevant car rental company, isn’t this ‘Conditional Selling’,
also an infringement of the Short-term Insurance Act?
-
When you consider the vehicle in this example, an Opel Corsa
Lite, costs R71 400 (at current prices) how can rental companies
justify an insurance premium at the rate of 78,2% — that is,
R55 845 (365 days times R153)?
Our
survey of rates charged by six rental companies in South Africa, as
reported in the accompanying story, led to several other
observations:
-
They all charge virtually the same rates for a given model;
-
They all levy these waivers (insurance) as a compulsory charge;
-
All personnel at the call centre reservation desks referred to
these waivers as ‘insurance’.
In
many cases it appears that car rental companies are now charging
more for insurance than they are for rentals. So what business are
they in?
Furthermore, where does the money for the waivers go? And how is it
accounted for? Indeed how many claims does a rental company receive?
One
source we interviewed said that they received “very few” claims for
damage or theft. When pressed, he suggested less than 5% of vehicles
were affected in a given year. In other words the waiver scam is a
license to print money. In any case, in less than 15 months the
receipts are enough to pay for a new vehicle.
Even if it were proved the process was legitimate, that rental
companies were genuinely passing the premium onto a licensed
underwriter and the rental companies themselves had, say, a binder
agreement from that underwriter to collect premiums, the rates are
highly excessive.
It
is very doubtful such underwriter would be allowed by any rental
organisation to enjoy such largesse at their expense and it is
alleged that somehow the money remains ‘in house’.
In
any case shouldn’t the consumer have a choice as to where he buys
his motor insurance or, if you want to use their terminology, his
waiver protection? I guess many insured clients would pay very
reasonable additional premiums if such an add-on as ‘car rental
cover’ could be introduced by their insurance company.
When you consider that a vehicle valued at less than R72 000 is
costing R55 000 a year in insurance, it should cause alarm bells
everywhere. These practices have continued unabated in the rental
market for years and years, and have become such a significant part
as to have migrated (without a licence) such companies from rental
operations to insurance operations.
Avis was quick to point out that the practice of charging for
waivers was, in fact, not insurance, “which we are not allowed to
charge,” said a fleet manager. “It is merely a waiver of the major
portion of a loss.”
Like all major rental businesses Avis operates a risk management
programme insuring (with an insurance company) against catastrophe
(such as a jumbo jet crash landing in its car park, or a major
hailstorm damaging large numbers of vehicles), but self insuring for
theft, damage and so on.
Internally, it sets an excess of, say, R50 000 per claim. So if a
vehicle was stolen, the rental client would have to pay R50 000
towards the replacement of the vehicle if he had not been sold the
waiver.
It
is this waiver, says Avis, that reduces his liability to R2 000,
maybe R3 000. In this event, R50 000 is then paid from the internal
self-insurance reserves of Avis, R3 000 by the client, and the
balance by the respective insurance company.
But
what form of protection is this, if it isn’t insurance? All rental
clerks call it insurance. And the use of the term ‘excess’ is a dead
give away, a term used exclusively in insurance circles and
understood as such by most motorists.
Even if rental companies suffered total losses of 20% of their fleet
each year (which they don’t) they are making a massive profit out of
a business that is not car rental business, but a form of insurance
in all but name. This whole matter requires serious investigation by
the authorities.
Postscript
Getting quotes from the car rental companies ranged from comical,
inarticulate, through to confusing, and occasionally efficient.
Clerks were puzzled when asked for “the full story” and eventually
coughed up more detail, but were confused about the tourism levy,
what the rate was, or on which amount it was levied.
The
same confusion concerned the airport levy, although one company
emphatically confirmed that “it was charged on all contracts
regardless of hire location.”.
One
clerk admitted, “I am not in a position to answer all your
questions.” We were then disconnected while being transferred to
“the pricing manager”.
When confronted about the strange case of the “free kilometres”, yet
being charged for fuel, another reservations assistant replied,
“Yes, I see what you mean; I will speak to my manager about it.”
The
amounts ‘reserved’ against the credit card varied a lot and was not
always explained clearly by the clerk. Some called it a ‘refundable
deposit’ as if the amount was actually transferred from the credit
card account; another called it a credit card ‘hold’; others called
it an ‘authorisation’ on the card which is ‘fully released’ if the
vehicle is returned in order.
For
a one day hire one company took a seven day authorisation of R4 770
– a bit of an imposition if you wanted to use your card for holiday
spending. One clerk talked about “adding a fuel deposit” but
drilling down to a clear explanation proved impossible.
The
upshot arising from the sometimes lengthy interviews was that it is
policy not to require much skill on the part of reservation clerks
since they aren’t supposed to answer detailed questions about
pricing. Clients are simply expected to swallow a
fait accompli.
Which perhaps leaves us with another possible definition of the
word, ‘waiver’: it seems to be, to waiver your money good bye ...
Source: ITInews – Insurance
Times and Investments Online
www.itinews.co.za
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