Specialty Motor
Companies who have a large number of vehicles at risk or who buy and sell motor vehicles, need bespoke insurance cover for their risk.
Chadwicks is proficient in designing tailor made cover for Specified Motor, Motor Fleets, Motor Funds and Motor Traders
Overview
Businesses in South Africa have a few options when it comes to structuring their motor insurance.
Generally our insurance packages include your commercial motor vehicles providing you insure your static asset risk as well (e.g. Buildings, Contents etc). That said, we are able to broker motor risks without the static risk, subject to the risk profile meeting certain predetermined underwriting criteria
We are proficient in designing bespoke motor fleet insurance solutions for businesses which own 20 or more motor vehicles. These policies automatically cover vehicles according to vehicle type (e.g. private, commercial, trucks etc), cover type (Comprehensive, Balance of Third Party Fire & Theft or Third Party only) up to preset sums insured.
The advantage, in addition to automatic cover, is premium economy based on your risk profile.
Motor Funds (also termed Aggregate Excess policies) cater for clients who have in excess of 20 vehicles and are willing to accept an excess (normally a minimum of R100 000) in return for a reduced motor premium.
Insurers only pay accident and theft claims (third party claims do not form part of the excess and are covered 100% from ground-up) once this excess has been exhausted or the amount of a single claim exceeds a predetermined sum insured threshold (normally called the "Stop Loss" limit).
The Motor Guide
Business motor insurance protects vehicles used by a business against financial loss from events such as accidents, theft, hijacking and fire, depending on the cover selected. It can also protect the business when one of its vehicles causes damage to somebody else’s property.
A motor accident can create several different losses at the same time. Damage to the vehicle, damage to another person’s property, loss of goods or equipment inside the vehicle and loss of income while the vehicle is off the road. A motor policy does not necessarily cover all four.
Business Motor Insurance protects vehicles used by a business.
This section deals with the vehicle itself, how it is valued and financed, who may drive it, where it may operate, what happens after an accident and what legal liability can arise from its use.
Fleet Insurance and Motor Traders Insurance are related but introduce risks and structures sufficiently different to justify their own sections later in this guide.
What this guide covers
This page is the specialty motor guide. It starts with the vehicle itself, how it is valued, financed, driven and covered for liability, because those questions apply to every business vehicle, and then goes on to the two structures that need separate treatment: Fleet Insurance and Motor Traders Insurance.
Commercial motor, also called business motor, arranged as part of a wider business assets package sits on the Business Assets page.
Index
Jump to any section of this guide.
Levels of Cover
Business vehicles can generally be insured comprehensively, for Third Party Fire and Theft or for Third Party Only.
Comprehensive cover normally protects the insured vehicle against accidental loss or damage, theft, hijacking and fire, together with certain liability arising from the use of the vehicle.
Third Party Fire and Theft removes ordinary accidental damage to the business’s own vehicle.
Third Party Only primarily protects against qualifying liability to others while the business carries the damage or loss to its own vehicle.
Settlement Basis
The answer depends on the basis of settlement stated in the policy. Common bases include retail value, market value and agreed value.
That distinction becomes important only when money actually has to change hands.
Example
Assume a business bought a vehicle two years ago for R800 000. It is stolen and not recovered. The outstanding finance may be R650 000. The vehicle’s current retail value might be R620 000. Its market value might be lower.
An insurer settling on retail value does not automatically pay the original R800 000 purchase price or the R650 000 still owed to the bank. It settles according to the valuation basis agreed in the policy.
This is why vehicle value and vehicle debt must be considered separately.
Retail Value, broadly represents the amount at which a similar vehicle could reasonably be purchased from a motor dealer, taking account of age, mileage, condition, specification and extras. The policy wording determines exactly how it is calculated.
Market Value, broadly represents the reasonable market value of the particular vehicle immediately before the loss. Depending on the policy, this may take account of published trade and retail information and other market evidence. Market value can therefore be lower than the amount required to replace the vehicle from a dealer.
Agreed Value, establishes a predetermined insured value accepted between the insurer and insured, subject to the policy terms. It is particularly useful where ordinary vehicle guides do not properly reflect the value of a specialist business vehicle.
Example
A truck may consist of a chassis and cab worth R1 million, a refrigerated body worth R500 000 and specialist refrigeration equipment worth another R300 000. The working vehicle is therefore an R1.8 million asset. For specialist vehicles, agreeing the value provides considerably greater certainty than relying on a generic valuation guide.
A business vehicle is frequently worth substantially more than the standard vehicle described by its registration number.
Canopies, cranes, refrigeration units, hydraulic equipment, tanks, special bodies, racking, winches and other permanently fitted equipment can represent hundreds of thousands or even millions of rand. These accessories need to be listed with the sums insured, so they insured correctly.
A truck insured for its R1 million chassis value while carrying R800 000 of permanent specialised equipment can create an obvious claim problem after a total loss. The insured value should reflect the complete working asset where the policy requires this.
Finance
This is one of the most important concepts in business Motor Insurance.
The insurer insures the vehicle. The finance house is owed money under a finance contract. Those two amounts do not necessarily remain equal.
A business can therefore have a perfectly valid Comprehensive Motor claim and still owe the bank money afterwards.
Example
Assume a business buys a vehicle for R800 000 with no large residual payment. Eighteen months later it is stolen and not recovered. The insurer values the vehicle at R600 000. The amount required to settle the finance agreement is R650 000.
The ordinary Motor claim produces a R600 000 settlement (before excess or other deductions). There is a R50 000 gap.
Where Credit Shortfall Cover applies, it is intended to address that qualifying difference, subject to the policy limit, excess and exclusions. Without it, the business could lose the vehicle and still owe R50 000 to the finance house.
Typical South African business Motor Credit Shortfall wording starts with the difference between the total loss Motor settlement and the amount owing to the financier. It can then deduct arrears, interest, refunds from cancelled insurance products, the Motor excess and other amounts specified in the wording.
Residual or balloon finance requires a further adjustment. This is where clients frequently misunderstand the cover.
A residual or balloon payment leaves a large portion of the vehicle debt for payment at the end of the finance period.
Two businesses each buy the same R800 000 vehicle. Business A finances the full amount through ordinary equal instalments. Business B chooses a R240 000 residual. Business B’s monthly instalments are lower because less capital is being repaid during the term. The R240 000 has not been eliminated, it has merely been postponed.
Many current South African Business Motor Credit Shortfall wordings do not simply pay the entire difference between the insurer’s vehicle settlement and the finance settlement where that difference has been increased by a residual. They deduct the additional instalments that would have been paid up to the date of loss if the finance agreement had been structured without the residual.
Example
Vehicle purchase price: R800 000 with a R240 000 residual.
Two years later the vehicle is written off.
Motor settlement: R600 000.
Finance settlement: R690 000.
Apparent shortfall: R90 000.
If the vehicle had been financed without the residual, the monthly instalment would have been R3 000 higher. Over 24 months the business would have paid an extra R72 000. A typical wording deducts that R72 000, leaving a qualifying shortfall claim of R18 000 before other deductions and limits.
The insurer is effectively saying it will help with the difference between insured vehicle value and normal finance debt, but will not automatically finance the extra debt created by the decision to postpone capital repayments through a large residual.
This is why “Credit Shortfall” on a schedule should never automatically be read as “the bank will be fully settled if the vehicle is written off.” The finance agreement and the insurance wording must be considered together.
A deposit creates another separate exposure. A business pays a R150 000 deposit on a R1 million vehicle and finances the balance. Six months later the vehicle is written off. The Motor insurer settles the vehicle value and the finance house is paid what it is owed. That does not automatically restore the original deposit.
Some specialist products provide deposit protection benefits following a total loss.
The business should therefore separate four questions:
Only when all four are answered is the finance risk properly understood.
Downtime & Liability
Vehicle Hire provides a temporary substitute following a qualifying insured loss where the benefit has been selected. The relevant questions are the daily limit, type of vehicle and maximum hire period. A replacement vehicle benefit may solve the loss of a salesperson’s car. It will not replace a refrigerated truck or specialised vehicle.
Loss of Use is different. It addresses the economic effect of not being able to use the insured vehicle. A specialist truck earning R12 000 of revenue per working day that cannot be replaced through ordinary rental creates a material interruption. Repairing the truck does not automatically reimburse that loss. Vehicle damage and operational downtime must be considered separately. This is why insurers usually insure a Rand value per day and limit this payment to fixed time period, often the first 3 days are a time excess.
Own damage protects the vehicle.
Liability protects against certain third party legal liability arising from its use. The value of a third party claim can bear no relationship to the value of the insured vehicle. A R400 000 bakkie can cause millions of rand of damage. The liability limit should be assessed independently of the vehicle value.
In South Africa the Road Accident Fund deals with bodily injury and death claims. It does not pay to repair the other person’s car, wall, gate, building or other property.
Contingent Liability is relevant where a vehicle used in the business does not belong to the company. An employee using a private vehicle for business journeys can create liability for the employer. Contingent Liability can protect the business against insured legal liability arising from non owned vehicle use, subject to the wording. It does not turn the employee’s vehicle into an insured company vehicle.
A company may prohibit drivers from carrying passengers. If a driver ignores the rule and a passenger is injured, the company may still face a claim. Unauthorised Passenger Liability is designed for defined liability arising from such situations.
Unauthorised use concerns the vehicle itself. For example an employee taking a company bakkie home without permission and later using it privately. Certain policies or extensions address qualifying unauthorised use by employees.
A mobile crane has two functions. While driving to site it functions as a vehicle. Once parked and lifting with its boom it functions as a working machine. Standard Motor liability can restrict the working risk. A Tool of Trade extension can provide additional liability protection where arranged. The same issue arises with concrete pumps, refuse trucks, drilling equipment and similar vehicles.
Liability does not necessarily stop when the vehicle stops moving.
A forklift damaging property while loading or a heavy item falling during unloading, may engage the Motor policy, Public Liability policy and Goods in Transit policy in different ways. Businesses regularly loading or unloading valuable or hazardous goods should ensure the policies dovetail correctly.
Conditions of Cover
Never assume that anybody with a driving licence may drive every vehicle on the policy. Some policies allow any properly licensed driver with permission. Others identify regular drivers, impose age restrictions or apply additional excesses to younger or inexperienced drivers.
Some business vehicles require the driver to hold a valid Professional Driving Permit (PrDP) in addition to the appropriate licence. This can apply to goods vehicles exceeding prescribed weight, buses, certain minibuses, breakdown vehicles and vehicles carrying passengers for reward. An expired or missing PrDP can create both a legal problem and an insurance problem.
A business has a responsibility to keep its vehicles reasonably roadworthy and to operate them lawfully. Worn tyres, defective brakes, serious mechanical defects or overloading can become highly relevant after an accident. For fleet operators, maintenance records, tyre inspections, licence records and load controls are not merely administrative paperwork, they can become evidence after a serious claim.
Vehicle theft and hijacking requirements change as criminal patterns change. An insurer may require an approved tracking device (or more than one, depending on the area of use and type of vehicle), an active subscription, specific overnight parking arrangements or other measures.
Check the current policy wording and schedule at every renewal and whenever a vehicle is added. A tracker with an unpaid subscription is is an unpaid claim, not a risk control strategy.
Territorial cover varies.
Many South African Business motor policies extend into several neighbouring countries, but the countries included and the conditions are not identical. Crossing the border can introduce requirements that do not exist in South Africa (insurer’s cross border letter, finance company permission, local compulsory third party insurance, driver licence and PrDP checks). Do this well before the vehicle reaches the border post.
Normal motor policies generally exclude certain politically or socially motivated events such as riot, strike, civil commotion and public disorder. SASRIA provides separate insurance for defined special risks in South Africa.
SASRIA should not be assumed to mirror every benefit under the ordinary motor policy. The SASRIA schedule and wording need to be checked separately.
Modern vehicles increasingly contain expensive batteries, sensors, cameras, radar systems and electronic driver assistance equipment.
A relatively ordinary bumper accident can now require specialist calibration before the vehicle is safe to return to the road. Electric vehicles introduce additional questions around battery damage, specialist repair facilities, charging equipment and potentially longer repair or replacement periods. These implications should be considered as part of the purchase and insurance decision.
At the Roadside
Protect people first.
Drivers must not admit liability at the roadside. Exchange necessary information and cooperate with the authorities, but do not negotiate or settle the legal merits of the claim.
Tell the broker everything, including when vehicles are bought or sold, their use changes, new types of drivers are introduced, vehicles begin operating in different territories or locations, overnight parking changes, vehicles are modified, drivers licences are endorsed, tracking or security arrangements change or major equipment is added.
Also disclose material changes to routes, passenger carrying, goods being transported or the nature of the business.
Fleets
Fleet Insurance should be treated as a separate subject from ordinary Business Motor.
The individual vehicles still need Motor cover, but the larger fleet creates another question. How much of the recurring motor risk should the business retain itself and how much should it transfer to an insurer?
Under a conventional fleet arrangement the business pays an agreed annual premium. The insurer pays insured claims above the applicable excesses.
Conventional Fleet Insurance is simple and predictable. Vehicle types and numbers per type (insurers have qualifying minimums usually 20-30 vehicles) and sums insured bands are declared up front and a premium is agreed.
At the end of the insurance period a premium adjustment is made based on the vehicle declaration. For many fleet owners, the benefit is the administration burden of keeping the insurance motor asset list current is removed.
An aggregate arrangement allows a larger fleet to retain an agreed amount of claims over the insurance year. The business agrees to carry the first R1.5 million of insured fleet losses. Claims accumulate until that retention is reached. What happens to subsequent claims depends on the programme design, including any per claim excess, insurer layer and stop loss arrangement.
The purpose is to allow the business to fund predictable smaller losses while transferring more severe or volatile losses.
Historical claims data is the normal starting point, but the appropriate retention is not automatically the historic average. Growth in the fleet, repair inflation, major losses excluded from the analysis and the business’s capacity to absorb adverse deviation must all be considered.
Stop loss protection prevents a deliberately retained risk from becoming unlimited.
A business that expects to fund approximately R1 million of ordinary claims and is comfortable with a maximum retained loss of R1.5 million can still face a catastrophic claims year of R3 million or R4 million. An appropriately structured stop loss arrangement provides insurance above the agreed retained level.
Burning cost is the claims cost generated by the fleet itself.
A fleet producing R1 million of claims every year fundamentally costs around R1 million in claims before insurer expenses, margins and catastrophe exposure are considered. Burning cost analysis allows large fleets with credible claims records to be priced more closely to their actual experience.
Example
A burner introduces an element of performance based premium. The insurer’s full annual premium might be R4 million. The business initially pays a 70 % deposit premium of R2.8 million. The agreed claims trigger is say 60 % of that deposit (R1.68 million). If qualifying paid and outstanding claims stay below the trigger, the business can benefit from the lower deposit. If claims exceed the trigger, the additional premium can become payable, taking the annual cost back to the full amount.
Outstanding claims are important. Actual payments of R1.3 million near year end may look safe, but three open accidents with R500 000 of reserves take the figure to R1.8 million and the trigger is exceeded. That distinction needs to be understood before choosing the structure.
Fleet risk is not only about claims occurring one vehicle at a time. Fifty vehicles parked at a depot overnight, each worth R600 000, represent R30 million of vehicle value exposed to one hailstorm, flood, fire or civil unrest event.
The fleet needs an accumulation limit capable of responding to the amount realistically concentrated at one location.
A large fleet should use claims information to prevent future claims rather than simply record old ones. Analysis should look at which drivers have accidents, which vehicles generate losses, what types of claims recur, where they happen and at what times.
Repeated reversing damage requires a different intervention from hijacking or high speed collisions.
Telematics, cameras, maintenance records and driver training are useful only when management acts on the information they generate. The objective is the lowest sustainable total cost of risk, not merely the lowest insurance premium.
Dealers, Workshops & Custody Risk
Motor Traders Insurance belongs under its own heading as the underlying exposure is fundamentally different.
A normal business primarily operates vehicles that belong to it. A motor trader can have its own vehicles, stock vehicles, demonstration vehicles and customers’ vehicles moving through its custody every day. The cover therefore needs to deal with both changing vehicle ownership and the fact that the business is working on or trading in the vehicles themselves.
Internal Risks generally deals with insured vehicles while at the insured premises. A technician may move one customer’s vehicle and collide with another. More seriously, a fire or hailstorm could damage dozens of customer and stock vehicles simultaneously. The amount insured therefore needs to consider the total vehicle accumulation.
A dealership containing R25 million of stock and customer vehicles has a potential R25 million event even if the most expensive individual vehicle is worth only R1.5 million.
External Risks generally deals with insured vehicles while being driven away from the premises for road testing, demonstrations, collection and delivery. The policy needs to establish who may drive and for what purpose. A workshop technician road testing a customer’s car after servicing is an External Risks exposure. A prospective purchaser test driving dealership stock is another.
Dealerships need to establish whether customers may test drive stock vehicles and under what conditions. A customer driving a R1.5 million vehicle with a salesperson beside them may fall within the normal demonstration basis. If the customer is allowed to take the vehicle alone, an Unaccompanied Demonstration extension may be required. Driver identification, licence verification, maximum vehicle values and other conditions can apply.
Courtesy vehicles create another exposure. A vehicle used by a customer for three days while their own vehicle is being repaired is doing something very different from undergoing a ten minute road test. Motor Traders programmes can provide specific cover for vehicles lent or hired to customers. Driver requirements, excesses, territorial restrictions and periods of use should be checked.
A repairer is necessarily working directly on someone else’s property. If a mechanic damages a customer’s vehicle while carrying out work, the policy needs to address property being worked upon. This is different from damaging furniture in the reception area or another person’s car in the parking area.
Defective workmanship creates two potential losses. One, the cost of correcting the faulty installation itself and the additional damage caused when the defect later produces an accident. Insurance treats the cost of redoing defective work differently from the resulting damage. The former is usually excluded and the latter is usually insurable under Public Liability (Defective Workmanship/Products).
The consequences of faulty work can arise after the vehicle has left the premises.
A brake repair may appear satisfactory when the customer collects the car. Two days later a defect causes an accident. The programme should address both loss occurring while the vehicle remains in the trader’s possession and insured liability arising after work has been completed and the vehicle returned. Again, insurance treats the cost of redoing defective work differently from the resulting damage. The former is usually excluded and the latter is usually insurable under Public Liability (Defective Workmanship/Products).
A customer’s vehicle falling from a workshop hoist creates several different losses. The customer’s vehicle is damaged, the hoist itself may be damaged, other vehicles or property can be damaged, and people can be injured. Motor Traders policies can contain specialist extensions relating to vehicle hoists and ramps. The hoist itself may also require appropriate machinery or property cover.
Motor traders face theft scenarios that ordinary businesses seldom encounter. A fraudster may obtain a vehicle using false identification or fraudulent payment information. A prospective purchaser may take a vehicle and fail to return. There may be no broken gate or forced entry. Most motor policies exclude theft by trickery or false pretence situations.
A dealership’s own company car, parts delivery bakkie or service vehicle should not automatically be treated as vehicle stock or a customer vehicle.
Some Motor Traders policies extend to defined own vehicles, others require those vehicles to be insured separately under Business Motor. The distinction should be established explicitly.
A proper Motor Traders programme should be capable of answering what happens if:
Before the Claim
Those questions usually reveal far more about the quality of a Business Motor programme than asking only “What is the premium?”
A business motor policy should do more than insure a list of registration numbers.
It should accurately describe the vehicles and accessories, who drives them, what they are used for, where they travel, where they are parked overnight, what their security is, what they carry, how much they are worth and what happens to the business when one of them stops working.
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