Understanding Voluntary Excess in Vehicle Insurance: A recent case

Finding insurance that fits your budget and provides the appropriate level of cover is a careful balancing act that remains a grudge purchase for most. Financial Services Providers (FSPs) and here we refer specifically to short-term insurance intermediaries, have specific duties in terms of the General Code of Conduct for Authorised Financial Services Providers and Representatives, (‘the Code’). They must clearly explain what the insurance policy being recommended provides in terms of benefits, and also ensure that the product being recommended is appropriate to your specific needs and circumstances. The FSP must ensure that the prospective client is placed in a position to make an informed decision, which is a vital aspect of the financial planning process. It is important for consumers to be aware that a cheaper premium may not provide the cover required. Any decision made in respect of the most appropriate option in terms of cover and premium must be made in consultation with the FSP, and with full knowledge and understanding of the implications and consequences of the option ultimately accepted.

One of the ways that one can look to reduce the monthly premium payable in respect of a short- term insurance policy is through the application of a voluntary excess. An excess is the first portion of your vehicle claim that you must pay before the claim is proceeded with or when you collectthevehicleetc. Tofacilitatealowerpremium,youcanoptforavoluntaryexcess,which is the amount you agree to pay, in addition to the compulsory excess. The increased excess does provide for a reduced premium, as you assume a greater portion of the risk in the event of an accident or loss, but it is not a decision that should be taken lightly. You must ensure that you consult with your FSP and fully appreciate the implications and consequences of such a decision.

A recent case considered by this Office has drawn attention to the concept of voluntary excess in vehicle insurance. The complainant bought a VW Polo R-Line valued at R336,000 and applied for comprehensive vehicle insurance. The policy was set up with coverage based on the retail value, along with a chosen excess of R5000 and a monthly premium of over R3000 for a 25-year-old, who was a first-time driver. However, looking for more affordable premiums, the policyholder switched to another insurer.

In switching the policy to another insurer, the complainant was able to reduce his premium by agreeing to a voluntary excess. The challenge arose when the policyholder had an accident, resulting in the vehicle being written off. During the claims process, the policyholder was informed that the voluntary excess was set at 55%, significantly reducing the value of the claim.

The complainant approached this Office for assistance. When this Office listened to the sales recordings, we found that the excess provision and details were well explained at the time of purchase. The insurance provider informed the complainant about the 55% voluntary excess, clearly describing how it works, even using different scenarios. There was no basis for a finding to be made against the FSP.

Whilst we were unable to assist this complainant, the case highlights the importance of clearly appreciating the implications of your decisions. Policyholders are urged to seek advice, thoroughly read policies, and clarify all doubts, ensuring that one can make informed choices regarding insurance coverage.

Should you believe that you have been financially prejudiced because of the financial service rendered to you, kindly visit our Complaints Portal at www.faisombud.co.za and select ‘Lodge Complaint’. Alternatively, you may submit a complaint in writing to info@faisombud.co.za, Fax: (012) 348 3447 / (012) 470 9097. Alternatively, you may call our Client Care Centre on (012) 762 5000 or Sharecall 086 066 3274 for assistance in submitting a complaint.