09 June 2011: More parents than ever before are believed to be "fronting" for their children - taking out car insurance policies in their own name rather than specifying their child as the named driver to reduce the cost - without realizing that if discovered the claim would not only be repudiated but in extreme cases they could also be left uninsurable.
A survey by the Motor Insurance Bureau (MIB) in the UK showed that a shocking 70% of respondents do not understand what it means to front while of the remaining 30% who do understand around one in five admit to misleading their insurer.
According to Helen Szemerei, CEO of IntegriSure, while fronting is also an increasingly common problem in South Africa, few consumers fully comprehend the risks involved. "An insurance policy contract requires all material facts that may influence an underwriter’s decision on how to underwrite a risk to be declared upfront. Szemerei does not believe that everyone is "fronting" to deliberately mislead, but rather as a result of not always understanding the importance of declaring all relevant facts. Misrepresentation may lead to the underwriter not only denying a claim but also refusing cover going forwards.
In the instance of deliberate misrepresentation, Szemerei says consumers are not just at risk of being refused cover by their current insurer but also from other insurers as well. "All dishonest information is shared throughout the insurance industry which could potentially jeopardize one’s ability to be insured by other providers in the marketplace."
"This is a dire situation for anybody to be in considering that few people are in a position to be able to afford to replace an asset as expensive as a vehicle in the instance of total loss without the financial aid of an insurance policy. Importantly, the insured could also be forced to pay for third party costs relating to damage to another party’s vehicle, potentially leaving them in a financially disastrous position."
Szemerei says that despite these risks some parents try to avoid possible penalties associated with younger drivers by disguising the fact that the vehicle being insured is regularly, if not permanently, driven by their children.
She says it is essential for anyone taking out a motor insurance policy to be upfront and declare all relevant information, including the frequency with which the vehicle is likely to be driven by a child. "Consumers should ensure they speak to their insurer or financial adviser to discuss possible options for insurance cover to see if they are able to negotiate on insurance premiums that are both affordable and representative of the risk involved."
"A financial services provider can also assist consumers in working out how to reduce the cost of their motor insurance in proportion to the market-related retail value on a regular basis. Vehicles lose value and it is unnecessary to pay a premium on an overstated value as insurance contracts will only pay market-related retail value in the event of a loss.
She says other security measures, such as lock-up garages and tracking devices or choosing to pay a higher excess on the policy may also contribute towards a reduction in the cost of insurance,Media enquiries: Bruce Nortje – bruce@integrisure.co.za or 076 264 0784