How to pick the right car insurance

Motor insurance is not a popular topic among vehicle owners, particularly in view of the recent Accident Insurance Association's moves to discourage brokers rebating offers the insurers' point of view.

NOTHING stirs the emotions like motor insurance. The excuses proffered for accidents are legion.

A judge once remarked that most road accidents seemed to be collisions between two stationary vehicles, if the stories of both parties were to be believed.

Although all vehicle owners have to buy some form of motor insurance, few understand the extent of the cover they have bought or their obligations.

Price appears to be the dominant criteria, but a cut price often means a cut price cover and a cut price service.

In Hongkong, car owners are required to take out liability insurance for an unlimited amount.

This is to protect the owner from possible claims for injury or death that could be made against him by third parties.

Although the law does not require you to insure your legal liability for damage to someone else's property, you would be crazy not to do so. A policy covering only the minimum legal injury or death claims is known as an 'Act' policy, but such policies are rare.

The minimum cover normally proposed is Third Party Only which covers unlimited liability for injury or death to third parties, and property damage, normally up to a limit of $2 million.

But who is a third party? You are the first party in the insurance contract and your insurers are the second party and anyone else involved is the third party.

Third party fire and theft is the simplest form of policy available which will cover you for damage to your vehicle. As its name implies, this cover extends the usual third-party-only cover to include loss of the vehicle, or damage to it, caused by thieves or by fire. And this includes any damage caused while thieves are driving it. Again, this cover is somewhat restrictive but it does appeal to those on a more limited budget.

A comprehensive cover is the widest coverage available. It includes protection against accidental damage. The term comprehensive is a bit of a misnomer, because it implies all forms of damage are covered. In reality, there are always a few exceptions - events that cannot be covered.

The standard comprehensive policy is divided into three sections, the third of which covers reasonable medical expenses for driver and passengers in the course of treating any injuries arising from an accident. The most important sections deal, of course, with damage to the insured vehicle and the insured person's liability to third parties.

The own damage section does not cover the loss of use of the vehicle - for example, the cost of hiring an alternative vehicle while yours is repaired. If another car was wholly responsible for the accident, then you can claim this from the third party's insurers.

As I have said before, the policy covers accidental damage, not mechanical or electrical breakdowns. I am sure you can see that the insurers should not have to be responsible for making good any mechanical parts that may break down in the normal course of running the vehicle. Likewise, routine wear and tear, and damage to tyres on their own are excluded.

This section also provides for a series of compulsory excesses, that is, amounts for which the insured is responsible for in the event of a claim. These could be invoked if driving is by anyone other than named in the policy, a claim resulting from theft, or if driving is by young or inexperienced drivers.

The liability to third parties section excludes compensation being paid when the third party is an employee of the insured and is killed or injured in the usual course of his employment; such a case would fall instead under Employees Compensation Insurance.

Neither does this section cover any damage to property belonging to the insured or to a member of his household.

There are some general exceptions to the usual motor insurance policy. The most important concerns the geographical area of cover, which is restricted to Hongkong and its harbour limits so long as the transit is carried out by Hongkong Ferry Company.

Policy conditions detail, among other things, your duties and responsibilities under the policy. They require you to maintain your vehicle in a good condition. If you are involved in an accident, you should never admit to being the guilty party at the scene. Such a confession could prejudice your right to recover anything under your policy.

You should offer basic information about you and your car, and take down full details of the other vehicle and person involved. You should then lodge a police report and tell your insurer about the accident as soon as possible. Weird excuses excluded, ofcourse.

Now to the question of price. Although there are many insurance companies in Hongkong we are not in a buyers market. Few, if any, insurers will write off the street business, that is, if they do not know you, or have other business with you.

Motor insurance has historically lost money for insurers, even before the last two or three years of massive explosion of car thefts which has cost the insurance industry more than $200 million annually.

If you own a target vehicle (see League Table), your best bet is either through a corporate deal or through a manufacturer's scheme. Even then, expect a large theft excess.

An insurance market body, the Accident Insurance Association, recommends rates to its members as a benchmark or guideline based on valid statistical data.

These rates are only advisory and not mandatory. Much motor insurance is placed through Hongkong's vast insurance agency network.

These intermediaries used to receive a pretty hefty commission and, by and large, rebate a good proportion of this back to the insured. From January commission was restricted to 15 per cent in the hope rebating would stop. In return, 1993 premium increases have been, for the most part, shelved.

Paul Frankland is the Hongkong manager of British insurer, Commercial Union Assurance