Following on from the discussion on Compulsory Third Party Insurance I provided this simple explanation to the broker to assist him answer a question from his client.

The broadest coverage is offered by Comprehensive Motor Insurance. It covers the vehicle from all loss or damage except for things that are excluded. The list is quite small in reality and are pretty common across all insurers.

Another option is Fire, Theft and Third Party Property Damage. This, as the name suggests, provides cover for the risks listed, but is not as broad as Comprehensive as it does not cover damage to the vehicle, except as a result of fire or being stolen.

The narrowest cover and a bare minimum to my thinking is Third Party Property Damage Only. This provides no cover for the vehicle itself, but does provide cover for losses to third party (other people’s) property caused where the driver is found to have been legally liable for that damage.

This is a very brief overview. If more information  is required, I have included an extract from my book, It May Happen to Me, a Guide to General Insurance on Commercial Motor as follows:

A business can own their own fleet to meet their transport requirements, outsource their transport requirements, or use a combination of both. Even when the company does outsource, it is not unusual for the firm to still have a fleet of vehicles, whether it be the business owner’s own vehicles or perhaps senior management and sales representatives.

Motor insurance provides protection from losses resulting from owning and operating a motor vehicle. The insurance covers losses to the Insured’s property and losses for which the Insured is liable as a result of owning or operating the vehicle.

With an emphasis on improved risk management, overall there has been a reduction in the number and severity of losses, but at the same time, increased awareness of responsibilities in the general public has had the effect of increasing the possibility of third party claims or actions being pursued (eg. emissions, pollution and third party property damage/personal injury).

In the past, motor has not been a profitable class for many insurers and this has led to some insurers being reluctant to insure commercial motor, particularly large fleets and what is known as ‘heavy motor’. On the other hand, specialisation in the form of insurers or underwriting agencies concentrating on commercial motor, or a specialist division within a large composite insurer being set up.

In view of the different risks associated with different types of commercial motor insurance, four separate divisions or classes of insurance have developed:

• Commercial Motor
• Heavy Motor
• Fleet Motor
• Specialist products for taxi and hire car fleets, cranes and other specialty vehicles.

While I offer comment on each below, before doing so, I would first offer some basic information about motor insurance.

1.1              Claims Service

Perhaps more important than in other classes, the claims service offered by the insurer is of paramount importance. The longer a vehicle is off the road, the more cost and disruption to the insured business. As such, it is important to determine the following in advance:

• Do you have a choice in the repairer?
• Are only genuine parts used in a repair?
• What are the assessing and authorising service standards?
• Does the insurer have a national assessing network?

1.2             Total Losses

Motor policies typically have either an agreed value or a sum insured. The latter can be a monetary figure or it may be shown simply as ‘market value’.

With an agreed value cover, the value of the vehicle to be paid by the insurer will be stipulated in the policy schedule. If the cover is not agreed value then, like most general insurance, motor insurance is a contract of indemnity (refer Chapter 6  of Part A). This means that the value of the vehicle is set at the time and the place of the loss, capped at the figure shown as the sum insured in the schedule.

If the vehicle is stolen and not recovered, or the repair cost exceeds the agreed value/sum insured/market value (as the case may be) less the salvage value of the vehicle, the vehicle will be treated as a total loss and thus written off.

In the event of a vehicle being written off, the salvage becomes the property of the insurer. In effect, the Insured sells the stolen or damaged vehicle to the insurer, and so it follows that the insurer is entitled to the proceeds of the salvage. This includes the unused portion of the registration.

When an insurer pays out the full value of any vehicle, the contract of insurance on that particular vehicle has been fulfilled and the insurance on that vehicle is at end. When you replace the vehicle, it is necessary to insure it afresh.

1.3             Motor Insurance Cover Options

There are four common options available for commercial motor vehicles. They are:

1. Comprehensive Cover
   This provides both:

–             cover for certain loss or damage to your vehicle; and

–             liability cover for certain loss or damage you or certain other people cause to third party vehicles and property.

2. Own Damage Cover Only
   This provides cover for certain loss or damage to your vehicle.
3. Fire, Theft & Third Party Property Damage
   As the name suggests, this provides cover for two perils?fire and theft?as well as third party property damage.
4. Third Party Property Damage Cover Only
   This provides liability cover for certain loss or damage you or certain other people cause to third party vehicles and property.

1.4            Things to keep in Mind when Dealing with Motor Insurance

It is always important under the principle of utmost good faith (see Chapter 5  of Part A) to advise of any modifications to the vehicle or any other issue that is likely to be of interest to an insurer.

Your motor insurance premiums will be affected by your claims loss ratio, so keep this in mind when entrusting company vehicles to any employee.

Naturally, the number and seriousness of traffic convictions is of interest to an underwriter and should be to the employer as well. Even more important is the requirement for the driver to be licenced to drive the vehicle entrusted to them.

Fire brigades are more and more often charging to attend an accident scene, particularly where there is clean-up required. It is important that the policy you have provides sufficient cover for what is often an unexpected expense.

Age and inexperienced driver restrictions and/or excesses are imposed by all insurers. Statistically, younger and less experienced drivers have a higher rate of accidents. Insurers do place higher deductibles on these drivers and, in some cases, policy restrictions.

Some policies have a provision under which the Insured agrees to carry a certain amount of insurance (usually a percentage of the value of the insured property), which is referred to as Average. It provides for full payment of all losses, up to the amount of the policy, if the insurance carried is at least equal to the specified percentage. If the specified amount of insurance isn’t carried, the Insured assumes a proportionate share of the loss.

When the insured vehicle is transported by sea between Australian ports, the policy pays any maritime contribution required if ‘general average’ is declared under Maritime Law. This is, of course, important if the vehicle uses any vehicular ferry.

CTP Gap Cover provides cover where the compulsory third party insurance (paid with the vehicle’s registration) proves inadequate for some reason.

With respect to vehicles that have the ability to tip out their loads, higher excesses may be imposed while a tip vehicle is in the process of tipping.

Other features to consider when arranging commercial motor insurance are:

• At what age is new vehicle replacement is offered.
• Does the policy provide cover for the difference between the market value and pay-out value of the vehicle? If so, what is the percentage limit of the market value?
• What is the policy limit per event for removal and delivery expenses?
• What is the policy limit for signwriting?
• What is the cover where there is a Car Sharing Agreement?

Insurer pays for accidental loss or damage when the insured vehicle is being used in a car sharing agreement including travelling to and from work provided any payment by passengers does not involve commercial use for profit.

Want is the limit for removal of debris?

• Most importantly, what is the limit for third party property claims?
• For transportation of dangerous goods, what is the policy limit?
• Is there a limit to replace locks and keys following theft of keys?

1.5             Common Motor Policy Exclusions

The following are the more common exclusions found in motor policies:

1.5.1     Accidents involving Drugs and/or Alcohol with Insured’s Knowledge

The first exclusion should come as no surprise! Loss damage, or liability for the insured vehicle or by the insured vehicle if the vehicle is driven by:

(i)           an Insured, or any person with the Insured’s consent, whose faculties are impaired by any drug or intoxicating liquor;

(ii)         anyone whose blood alcohol reading exceeds the legal limit; or

(iii)        anyone who, following an accident, fails or refuses to allow the taking of a sample of breath or blood/urine for testing as required by law in the State or Territory where the incident occurred.

This exclusion is usually inoperative if the Insured can prove they were unaware that the vehicle was being driven by, or in the charge of, a person that was so affected.

1.5.2     Depreciation, Wear, Tear & Corrosion

Loss of or damage to the insured vehicle due to depreciation, wear, tear, rust or corrosion.

1.5.3     Electronic Data/Software

Loss or damage to the insured vehicle or any resultant damage due to electrical or electronic breakdown, failure, malfunction or breakage.

1.5.4     Legal Confiscation/Seizure

Loss, damage or liability when the insured vehicle has been legally seized, confiscated, acquired or repossessed.

1.5.5     Loss of Use

Loss of use and/or any financial loss suffered by the Insured as a result of loss or damage to the insured vehicle.

1.5.6     Non-approved Fuel Systems or Fuel Additives

Loss, damage or liability when the insured vehicle is being used with a fuel system that does not comply with the appropriate Australian Standards Code and loss or liability arises directly or indirectly by or from the use of such system, and/or loss or damage arising due to the incorrect use of fuel additives.

1.5.7     Terrorism

Since ‘September 11’, terrorism exclusions are commonplace in all classes of insurance.

1.5.8     Unlicensed Drivers with Insured Knowledge

Loss, damage or liability to the insured vehicle or by the insured vehicle if the vehicle is driven by an Insured or any person with the Insured’s consent, who is not licensed under relevant laws to drive such a vehicle.

While cover is in force if the vehicle is stolen by an unlicenced driver, if the Insured gives permission to use the vehicle and the driver is not licenced, no cover is in place. It is stressed that all drivers licences should be checked.

1.5.9     Unlawful Use

Loss, damage or liability that occurs through the use of, or as a result of, the vehicle being used to breach any laws.

1.5.10   Unregistered Vehicle

The material loss or damage and/or liability sections of a policy may exclude cover for unregistered vehicles or vehicles that do not have the appropriate registration or permit required by law. This exclusion often extends to include unregistered substitute vehicles.

1.5.11   Unsafe/Non- Roadworthy Condition

This is another that should come as no surprise!

Loss, damage or liability is not covered. If the insured vehicle is used in an unsafe or unroadworthy condition, unless such a condition could not have been easily detected by an Insured prior to the incident.

This exclusion generally does not apply if it can be shown that any loss or liability was not caused or contributed to by the unsafe or unroadworthy condition.

1.5.12   Cross Liabilities

While the third party section of a motor policy usually excludes damage to any vehicles in the custody and control of the Insured, under Cross Liability the Insured is able to be paid should one of their vehicles have a collision where the other party is, in fact, an associated company of theirs.

1.5.13   Tools of Trade

A common exclusion is known as the Tool of Trade exclusion. This exclusion applies to the operation of any vehicle with an attachment/tool/equipment/apparatus that forms part of the vehicle and is engaged in and undertaking work for which it was designed, such as scrapping, harvesting, shovelling, grading, lifting, clearing, hosing, ploughing, pumping, vacuuming, levelling, boring, drilling, digging etc. Usually the exclusion will not apply in circumstances where liability arises during transport, transit or haulage.

1.6            Commercial Motor

This insurance typically covers single vehicles or smaller fleets. The size of the fleet before it moves to a Fleet Motor Policy depends on the insurer. It can be as low as five.

The cover for the vehicle itself is for the repair or replacement of the vehicle up to the market value or the insured amount, whichever is the lesser. Agreed market value policies are available and provide some certainty to the Insured when the vehicle is written off.

Typically, the policy provides cover for the gates, tarps, dogs and chains, although this is often

sub-limited.

Most policies, but not all, include the manufacturer’s tools and accessories this is included in the sum insured. Some policies do have a sub-limit. A  separate sub-limit is sometimes shown for unspecified tools and accessories.

1.7             Fleet Motor

Fleet motor, as the name suggests, has been designed to provide insurance on a fleet of vehicles.

For many insurers, the criteria is one of the following:

• Sedan/light commercial fleets where clients are receptive to risk control and claims management programs.
• Limousine, hire car and chauffeur driven fleet, but typically not rental fleets.
• Transport business (excluding refrigerated/livestock) comprising short and/or medium haul, ie. less than 600km, including hazardous goods carrying vehicles and logging contractors, providing first-class risk management practices are in place.
• Mobile contractors plant and equipment, such as:

–             earthmoving, roadworks, excavation, clearing and forestry (excluding ‘old growth’ logging contractors); and

–             heavy earthmoving equipment involved in the mining industry (excluding ‘soft rock’ underground/offshore risks).

• Plant and equipment hire/rental fleets.
• Any fleet (notwithstanding the above) that has been risk-engineered, attaining an ‘excellent’ or ‘good’ grading, and which has a satisfactory claims history.
• Customers requiring self-insurance, under excess or aggregate deductible solutions.

Often the specialist underwriter provides tools such as online reporting of claims, which then returns risk management and accounting information back to the Insured for the fleet benchmarking and building on safety so as to increase the performance of the fleet and reduce the cost of insurance.

For larger fleets, satellite tracking of vehicles may be provided or subsidised in some way.

1.8            Heavy Motor

The heavy motor policy is suited to customers in the transport and earthmoving industry who have either a single commercial vehicle or commercial fleet with a goods carrying capacity of over 5 tonnes.

Besides what has already been covered, it is important to consider the following, if applicable:

• Material damage cover for a trailer in control.
• Liability cover for a trailer in control.
• Hazardous goods liability cover limits.

1.9            Special Covers

There are a range of covers that are available to cover special vehicles or industries. These include taxi fleets, hire vehicles, mobile plant and equipment, including cranes, to name a few.

Your best advice here is to find a specialist insurance broker in your particular area. In turn, they will deal with a specialist underwriter to tailor a policy to your needs.

1.10         Summary of Chapter

I thought this would be one of the shorter chapters of the Guide. However, this type of insurance, like most, had many important things that needed to be brought to the reader’s attention. Who was it that said insurance is easy?

If you are interested in the book please visit the LMI website.