MOTOR INSURANCE

Brief summary

Prepared by Tsegaye Amde

 Motor Insurance

Motor Insurance gives coverage against accidental loss or damage to

own vehicle or to a third party. Motor insurance contracts permit the
insured to purchase both property and liability insurance under one
policy. The contract can be divided, into two separate parts, first it
provide insurance against physical damage to automobile, and the other
protecting against potential liabilities arising out of the ownership,
maintenance, or use of an automobile.

For the purpose of insurance, motor vehicles are classified as follows;

1. Private motor vehicles

2. Commercial vehicles
3. Special motor vehicles
4. Motor cycles

Private motor vehicles are those motor vehicles not used carrying
passengers for hire or reward. All motor vehicles used for personal use
are classified in this classification. It is designed for family use but sole
proprietors and business entities can also use this cover to insure private
passengers automobiles used in their business. Pick-up, sedan delivery,
or panel trucks can be insured but not for business use. It is not the type
of vehicle that determines the classification but the usage and purpose
of the vehicle.

Commercial motor vehicles are thosevehicles used for commercial

purpose. Trucks used to transport general goods and tankers used to
transport liquid items can be classified in this category. Buses used to
transport passengers, taxis, vehicles used for rental purpose, etc. is
classified in this category. In general, vehicles carrying and transporting
goods or passengers are classified in this category.

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Special motor vehicles are those motor vehicles used for special
purpose are classified in this category. Ambulances, firefighting motor
vehicles, mobile cranes, concrete carriers, excavators, dozers, graders
etc. are classified in this category. Vehicles used for special construction
and agricultural usage can be classified in this category.

Scope of Insurance Cover

The scope or type of insurance cover, depending the wish and need of
the insured can be one of the following.

1. Comprehensive motor insurance cover,

2. Third party motor insurance cover,
3. Third party, fire and theft motor insurance cover.

Perils to be insured under Motor Insurance

 Accidental collision
 Overturning
 Loss or damage by Fire
 External explosion
 Self-ignition
 Lightning
 Theft
 Malicious Act
 Loss or damage by transit risk
 Impact damage caused by falling object
 Cost of protection and removal in most cases up to
20%of agreed repair cost
 Legal liability to third parties
 Bodily injury to third parties
 Property damage to third parties

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Perils not covered

The major perils that are not covered by most insurers are;
 Wear and tear and/or depreciation
 Mechanical or electrical breakdown
 Consequential loss or loss of use
 Accident beyond territorial limit of Ethiopia if it is not
extended
 Damage caused by over loading or strain
 Damage to bridges or road due to weight of the vehicle
 Any liability directly or indirectly occasioned by
convulsion of nature, any act of banditry
 If the vehicle is used for illegal activities or for purpose
otherwise stated in the policy
 Vehicle driven by a person who does not have a valid
driving license, etc.

Comprehensive Motor Insurance

This type of motor insurance gives insurance coverage to own vehicle

damage and damage to third parties property, bodily injury and death to
third parties.

As far as damage to the insured vehicle is concerned, the policy provides

cover for up to the insured’s estimated value which is the sum insured of
the vehicle as stated in the policy schedule or the value of the vehicle at
time of loss (market value) whichever is the lower. Therefore, it is
important for the insured to regularly review the estimated value of the
vehicle and arrange for adequate cover.

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Third Party Motor Insurance

This form of insurance policy covers only the insured’s liability in respect
of death or bodily injury caused to third parties or damage caused to
third party property through the use of insured vehicle. It will not cover
the damage or loss of insured vehicle. The cover does not provide any
direct benefit to the insured’s property it only relives the legal liability of
the insured that arises by the use of his vehicle.

Third party motor insurance is a mandatory policy issued by an

insurance company as a part of prevention of the general public. It
protects the general public from any motor accident that might take
place on the road. The law imposes that every owner of a motor vehicle
must have a minimum of third party motor insurance policy.

The insurance policy pay compensation for death or bodily injury and for
damage to property of others which we call it third party. The insured is
treated as the first party and the insurance company as the second party
while all other parties are treated as third parties.

In Ethiopia third party insurance cover becomes compulsory or

mandatory by proclamation number 559/08 as it is replaced by
proclamation number 799/12.
The proclamation states that ” No person shall drive or cause or permit
any other person to drive a vehicle on a road unless he has a valid
insurance coverage against third party risks in relation to such vehicle” .
It establishes a system for facilitating the provision of emergency
medical treatment to victims of vehicle accidents and it requires owners
of motor vehicle to conclude a minimum of third party insurance cover.

The amount of compensation due to loss or damage caused by an

insured vehicle shall not exceed;
 Birr 40,000 per person in case of death.

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  Birr 5,000 to Birr 40,000 per person in case of bodily
injury.
 Birr 100,000 in the case of loss or damage to property.
 Birr 2,000 emergency medical treatment to any person
who has sustained injury caused by a vehicle accident.

But if there is a desire or need by the insured, the minimum limit of the
insurance cover can be increased by paying additional premium.

Third party, Fire and Theft Cover

This form of insurance policy gives cover to third party liability as
described above plus damage or loss to the insured’s own vehicle
caused by fire or loss of the vehicle or parts thereof by theft. If damage
to the vehicle of the insured is caused other than fire and theft it will not
have insurance cover.

Parameters that must be taken into account in determining

premium
 Age of the person who drive the vehicle
 Driving history of the person who drives the vehicle
 Gender, marital status of the person who is going to
drive the vehicle
 Profession of the person
 Make of the vehicle
 Year of make of the vehicle
 Cubic capacity of the vehicle
 Geographical location in which the vehicle is to be
used

There are certain factors that make the basic premium to be reduced; if
the insured have more than one vehicle there is a possibility of getting
fleet discount. If the insured did not make or lodged a claim he/she can
enjoy a no claim discount (NCD) ranging from 10% up to 50% based on
the number of years without claim.

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Excess

An excess also known as deductible is a fixed contribution by the

insured that must be paid each time as claim is paid to the insured.
Excess is an amount to be subtracted from each and every loss amount
to determine the insured’s recovery. Excess could be mandatory
(compulsory) or optional (voluntary). Compulsory excess is the
minimum excess payment the insurer will accept on the insurance
policy. Minimum excesses vary according to the personal details, driving
record and the insurance company. The purpose of imposing
compulsory excess by the insurer is to eliminate small claims and to
reduce moral hazard.
To reduce the insurance premium, the insured may offer to pay a higher
excess than the compulsory excess imposed by the insurer. The
voluntary excess is the extra amount over and above the compulsory
excess that is agreed to be paid in the event of a claim. As a higher
excess reduces the amount of claim to be paid by the insurer, the
insurer is able to offer a significant reduction in premium. In addition to
the main purpose voluntary excess can be enjoyed by the will of the
insured and the insured can get a discount on the premium to be
charged.

Motor Claim

Motor claims handling basic procedures

In all insurance companies prompt and efficient settlement of claims

shall be the guiding policy of the company. The major procedures are
listed here below;
 Notify the accident immediately to the insurer. Accident
notification form should be completed by both the insured and his
driver within reasonable time; the name and signature of both
should be included.

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 After the accident the insured should have to report to the police
or if there is no police in the area it could be reported to the local
authorities and give full information about the accident.
 The insured should have to protect the damaged property from
being looted and the damaged property not to be spoiled.
 The underwriting verification form should have to be properly and
carefully completed by the Underwriting Department. The form
should include all underwriting information and a copy of it must
be kept in the policy file for reference during renewal of the
policy. All remarks noted during pre-risk survey should be included
in the verification form.
 The claim notification and the underwriting verification form
should have to be passed to the claim officer immediately.
 Spot survey or inspection should be conducted on the damaged
vehicle within the shortest possible time depending on the place
and distance of the accident site.
 If third party is involved in the accident full address of the third
party, photograph of the accident and name of the insurance
company and any other relevant information should be collected
carefully. The insured should have to avoid negotiation with third
party unless he/she got a written consent from the insurer.
 The damaged vehicle should have to be towed as soon as possible
to wreck yard of the insurer. The surveyor or inspector should
request the appropriate towing machine stating the distance and
other details of the accident. The claim officer should immediately
arrange towing machine based on the request.
 The insured should have to be communicated and be informed
about the cost to be covered by the insurer for protection and
removal (in most cases 20% of the repair cost) of the damage
property.
 The insured or his representative should hand over the damaged
vehicle to the towing service handler. No parts should be left
unattended at the accident site. The towing service handler
should hand over the damage vehicle to the insurer.

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 The surveyor surveys the damage vehicle as soon as possible. The
survey report should be exhaustive and clearly include the items
to be replaced and to be repaired with detailed remarks. Major
salvage items which could be dismantled at wreck yard should be
indicated and items to be checked at machine shop should be
listed down.
 The surveyor should give estimate for labor cost of the damage
part. The estimate should show item by item at least for major
works and summarized as total labor cost for price comparison.
The cost for parts to be replaced should consider dealer’s price.
 Tender should be floated among four garages, if possible two
from the insured side and the other two from the insurer. The
collected bid usually is opened in the presence of the insured or
his representative.
 Bid result should be analyzed in detail and the price comparison
should be clearly listed. Work order should be awarded to the bid
winner by analyzing the labor cost and parts cost. If the insured
request the repair work to be handled in his/ her own preferred
garage other than the bid winner it can be authorized by making
the insured to sign discharge slip provided that the insured
compensate the bid winner by paying at least an amount (usually
2% of the repair cost) that compensate costs incurred to
participate in the bid.
 When the damage vehicle is repaired to the full satisfaction of the
insured discharge should be signed by the insured. Before
releasing the vehicle the salvage items should be collected by the
insurer, excess and contribution should be paid by the insured if
there is any.
 The repaired vehicle should be inspected by surveyor at the
garage or any convenient place before payment is effected to the
garage.
 If all requirements are fulfilled and satisfaction note is signed by
the insured payment for the garage should be effected as soon as
possible.

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 If total loss is declared and the claim is to be settled on total loss
basis the following additional documents are needed from the
insured;
1. The title booklet that shows the ownership
2. Power of attorney that enables the insurer to transfer the
damage vehicle
3. Evidence from Road Transport Authority that shows the
damage vehicle is free from any obligation
4. Clearance from Customs and Inland Revenue Authority that
shows the damage vehicle has no debt.

THANK YOU

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