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Q: Why is NCD reduced after a claim, even if the insured does not seem to be at fault?
A: The reason is: once any accident / claim is made known to the insurer, the insurer, by virtue of the insurance contract to indemnify the insured, has to reserve some funds in anticipation of any claim.
Q: What is the fastest way for the insured to get back his / her NCD?
A: However, if the insured is rather sure that the accident / claim is not due to his/her fault, the insured may ask the insurer to disregard the claim and reinstate the NCD. Depending on the circumstances, the insurer may ask the insured to sign a Letter of Indemnity* or Letter of Undertaking* to take over conduct of this claim. In other words, should there be any claim later on from any party with respect to this accident, the insurer would not be responsible. Instead, the insured would have to deal with the claim himself/herself.
* this is normally subject to there being no injury/death involved in the accident, ie only property damage is involved. If there is any injury/death in the accident, the insurer is then bound by Statue / Road Traffic Act to satisfy injury/death claims arising from road traffic accidents and therefore the insurer is in no position to accept such a letter / undertaking.
Q: Under what condition is it safe for the insured to give an undertaking to get back the NCD?
A: Thus, it is only advisable for the insured to sign such a Letter of Indemnity or Letter of Undertaking if the insured is rather sure he/she is not at fault. Otherwise, the insured, while saving some money upfront because of having the NCD, may end up paying a claim out of his / her own pocket later on.
Some clients may ask: is there any alternative: ie NOT having to sign the Letter of Indemnity / Letter of Undertaking but still get back the NCD.
Well, the alternative is to wait for the insurer to be satisfied that there is no more claim or liability on the policy and hence it would close the file without liability. The insured, in this manner, would also have his/her NCD reinstated.
Q: How long does the insured have to wait?
A: However, do note that this may take some time**. Under common law, the time bar for Third Party Property Damage claims is 6 years, ie within 6 years of the accident date, the third party can file a claim for property damage. For Third Party Injury claims, the time bar is 3 years. So the insured may appreciate that it is not that the insurer wanting to keep the file open but under the law, the insurer has an obligation to do so! The insurer would also like to close the file soonest and release any reserve funds put under this case!
Q: What else can the insured do to get back his NCD sooner?
A: Another way for the insured to assist the insurer to closing the file sooner (and get his/her NCD reinstated sooner!) is to keep his own insurer of his/her third party informed on the claim status against the third party. Suppose, the insured was sure it was the third party’s fault and claimed successfully against the third party insurer. The insured can then submit the relevant documents (eg the letter of demand and the Third Party Discharge Voucher) to his/her own insurer to show that he/she has been successful in claiming against the third party, preferably being able to show that the liability of the third party is 100% (or close to 100%). This is an indication that the insurer was not at fault and his/her insurer, with such documentation, would be a better position to repudiate any liability from any third party trying to make a claim against the insured’s policy.
The bottomline is: if the insurer does not have any liability (does not have to pay any claim or have funds reserved to pay claims), then the insured’s NCD should be intact!
** unless it was a clear cut case, eg the insured was hit from the back by the third party. Normally, for such cases, the insurer would be in a more confident position to expeditiously close the case and it would not be likely for the third party to make a claim.
Q: Would the insurer play Santa Claus and ‘generously’ pay a claim, thereby jeopardising the insured’s NCD?
A: Finally, some clients also ask: if the insurer ‘generously’ pays out a claim to the third party, would that not result in the insured losing his/her NCD? Is that not unfair to the insured?
Well, the insurer, acting in its self-interest, is UNLIKELY to be so ‘generous’. Suppose the insurer pays a $3,000 claim. Would it be able to charge the insured a renewal with additional premium of $3,000 or more? Unlikely. Maybe the insurer charges an additional premium of $800 more. Question: would any company spend $3,000 to earn $800? The answer is self-evident! Moreover, the insured may also get competitive quotations from other insurer so the renewal is NOT even guaranteed! If the insurer may even lose the whole business altogether, let alone recouping the $800! Thus, from the above, one can conclude quite safely that the insurer, to save its own skin, would NOT be flippantly pay a third party claim! Most of time, the insurer only pays after it has done its homework and realise that there is no better way out. And it will even try to bargain to pay as little as it can get away with! Do remember that in this case, when the insurer pays a claim to the third party, the insurer, NOT the insured, is the main aggrieved party!
Q: How would my claim against the third party's insurer impact my NCD? How may I, through a successful third party claim, get my NCD reinstated?
A: If you are able to succcessfully claim against the third party insurer where level of liability is 80%* or more on the other party, you are deemed to be 'substantially NOT at fault' and you can request your insurer to reinstate your NCD, ie as though you have not made a claim.
* eg your total claim is $10,000 and the third party insurer paid $8,000 or more, that translates to a level of liability of 80% or more, ie the third party insurer agrees that you are more than 80% NOT at fault.
Q: If I allow the insurer to reduce my NCD now and later on the claim case finally closes without any liability (ie the insurer did not pay any claim), would I not have upfront paid extra premium due to the reduced NCD? This is not fair to me?
A: When that eventually happens, ie no claims paid, you get your NCD reinstated to the level as though you have not made any claim. You can then request the insurer to refund you the extra premium you have paid. Eg if the original premium with reduced NCD of 20% is $800 and if your NCD is reinstated to 50% and premium should have been $500, then you can request the insurer to refund you the difference of $800 - $500 = $300! So you do not lose out, except that upfront, you have to pay the extra in return for the insurer having to be potentially liable for any claim, which may be substantial. In the case of private vehicle insurance, the insurer's typical limit of liability for third party property damage is $5 million and for injury, an unlimited amount!
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