Mechanical aid or money spinner

Hollard Insurance recently launched their Motor Mechanical Aid policy, which they believe will shake up the market for motor warranties. FAnews took a closer look.

Motorists can choose from a number of product derivatives from Hollard's Motor Mechanical Aid cover, including the entry level "Move" option, a middle-of the-road "Drive" option and the top-of-the-line "Cruise" option. Cover for car hire, small accident repair and tyres are available as optional extras.

The cheapest option covers mechanical breakdown to engine, transmission and drive shaft, while the two higher level products add another 15 components to the list. Motorists who elect the Drive or Cruise option thus enjoy cover for the cost of repair and or replacement of items such as differentials, turbo assemblies, management systems, steering mechanisms, braking systems, etc. The Cruise option offers slightly higher claim limits and a twice-per-annum service allowance.

The Motor Mechanical Aid policy will be distributed directly by Hollard and through the broker channel. At present, Hollard has no plans to offer the product through motor retailers. Premiums will be based on the type of policy, make of motor vehicle and vehicle age and mileage. Premiums start from R79 per month on the entry level policy.

Eligible for cover

Vehicles which are older than 10 years, have travelled more than 200 000 kilometres, are used for commercial purposes, or enjoy coverage under existing manufacturer warranties or service plans, are excluded.

To qualify for benefits under the Motor Medical Aid section the vehicle must be inspected by an approved service centre. Any faults identified during this inspection will not be covered until they are repaired by an authorised repairer and to Hollard's satisfaction.

Scrutinising the wording

While the policy is in effect, policyholders will be covered for "the repair and/or replacement of listed major components as a direct consequence of mechanical breakdown". These words are emphasised, because along with the many policy exclusions, they provide important insight into the type of claim that will be entertained.

There are 15 exclusions under the Motor Mechanical Aid section of the policy. Clause three excludes cover in the event of "the failure of any component or part caused by the failure of a non-covered part". Clause 10 excludes "damage due to the loss of coolant in engines using liquid coolant…". And clause 14 excludes damage caused by "reduction in operating performance commensurate with age". The clause further states "the decision on what is considered fair wear and tear is at Hollard's discretion". And the list goes on.

Additional exclusions are found in the description of individual component coverage. For example, the engine component excludes repair and or replacement costs due to "decarbonisation and failure caused by the build-up of carbon deposits or blown cylinder head gaskets".

Interpretation

If these exclusions are applied to the letter, policyholders opting for the Drive option will be hard pressed to make a successful claim. And there is enough room for the insurer to manoeuvre in the more expensive options too. While it can be argued that most of these exclusions are standard for policies of this nature, one has to question the extent to which these exclusions are open to interpretation.

Major concerns

We asked Colin Mussett, Divisional Manager: Technical Services at the Automobile Association for some comment on the policy. He commented on the exclusion of cover in the event of a cylinder head gasket failure, pointing out, "this is 'common' on older vehicles and would be as a result of poor cooling, over-fuelling, timing or even poor previous repairs carried out". The policy wording suggests that a cylinder head gasket failure is not covered under the Drive option, while the more expensive option offers coverage under the 'Overheating' section.

Mussett also expressed concern at clause 12, in the general exclusion section of the policy, which excludes consequential damages. For example, consider the significant engine damage caused to a vehicle by a thermostat failure or a water pump failure. In terms of the policy wording, the insurer could choose to pay out only for the causal mechanical failure.

While the conditions attached to the Cruise policy's service cover appear reasonable, Mussett does not believe a customer is best served taking up the option. The policy allows for R500 per service at regular motor manufacturer specified intervals to a maximum of two visits per year. There are not too many vehicles that can be serviced for less than R500. The average motor vehicle owner would be ill advised to save for a fraction of his servicing costs through an insurance policy.

Weighing up the benefits

Hollard believes the product offers a number of benefits over the existing motor warranties such as those offered through Motorite, Innovation and SA Warranties.

The first benefit is that the premium is deducted monthly and continues until the insured cancels the policy or the insured's motor vehicle no longer meets the policy criteria. This contrasts with existing warranties which require upfront premium payments. Product longevity provides peace of mind, but requires some discipline from the policyholder in ensuring that his vehicle still meets the policy criteria. Imagine the disappointment if the mechanical breakdown occurs when the vehicle is 10 years and six months old and thus no longer covered.

A second major advantage of the Hollard Motor Mechanical Aid policy is that the insured can purchase this policy at any stage. The selling window is not limited to the purchase or financing of a new or second hand vehicle as is currently the case. Benefits are consistent through the period of cover, and "cover is provided at full benefit level to reasonable wear and tear and mechanical failure".

Consumers will also welcome the fact that monthly premiums will put an end to the unethical practice of loading entire policy premiums on to motor vehicle finance agreements upfront.

Careful considered advice necessary

It is not clear that the product offers value for money to the consumer or that cover under the policy is adequate compensation in the event of a breakdown. When we asked Hollard if their repair allowances were adequate for all vehicles they responded: "The cover will not cater for all vehicle types and all of the respective costs of repairing. But we do believe the coverage options will cater for the majority of the cars on our road and the mechanical and other components that may break on them from time to time."

The number of exclusions are also concerning and there may be difficulty in consistently applying many of these conditions. For those vehicle owners who want additional cover in the event of genuine mechanical failures, this policy is probably a better bet than the inflexible motor warranty covers which are available at present.

Brokers will play an important role in assisting individual motor owners to carefully assess their circumstances before purchasing such a policy.