Comprehensive cover offered for older cars by most insurers

IT MAY sometimes be on a case-by-case basis but comprehensive insurance cover for cars over 10 years of age is generally available, although motorists may be reluctant to pay the higher premium quoted.

Motor insurance for older cars has been an issue for some car owners as more revalidate their vehicle's certificate of entitlement (COE). This is when the lifespan of a car is extended beyond 10 years by paying the PQP or prevailing quota premium.

In 2015, the total number of Category A and B vehicles with revalidated COEs was 9,919, up 342 per cent from 2014's 2,244.

But some car owners complain that they face difficulty securing comprehensive insurance cover for their older cars and can only get a more basic third-party policy.

In general, a comprehensive policy covers the repair or replacement of a vehicle upon damage or loss. It also covers claims from third parties for damage to property and persons.

On the other hand, a third party policy only covers claims from third parties, and owners have to pay for their own damage.

"In Singapore, comprehensive cover is available for older vehicles, even above 10 years old, because we have this peculiar COE element which adds to the value of the vehicle," explained Derek Teo, chief executive of the General Insurance Association of Singapore (GIA).

"Therefore, a vehicle that is 10-plus years still has reasonable value that is high enough to be considered for comprehensive insurance cover."

The problem, according to Mr Teo, is that motorists with older cars "expect to pay a lower premium, and lament when they find out that this is not the case".

This is because they perceive the car value to have fallen, hence the premium must fall accordingly.

"But the value of the vehicle is just one of the many rating factors," said Mr Teo. "To an insurer, repair cost does not vary significantly between newer and older vehicles. This is an underwriting factor which impacts premium."

AXA, the second biggest motor insurer, will cover vehicles not more than 25 years old, while China Taiping accepts saloon cars up to 15 years.

But some of the bigger motor insurers providing comprehensive cover for cars older than 10 years only on a case-by-case basis are NTUC Income, MSIG and Tokio Marine.

According to one insurer, this is because owners of older cars are generally "not prepared to pay the same level of premium as newer vehicles even though repair cost is the same for old and new".

"The condition of an older car may also not be as good, hence the resistance of insurers to accept older vehicles," he added.

Market leader NTUC Income does so after ensuring "the policyholder understands he might be paying for comprehensive cover unnecessarily".

A spokesman explained that this is because cars which are more than 10 years have "little market value". He gave the example of a 12-year-old Toyota Corolla which its owner paid S$50,000 to renew its COE for 10 years.

He said: "The policyholder met with an accident and the repair cost is S$20,000. The insurance company will declare the car a total loss as its market value is not much more than the residual value of the car."

The residual value or paper value is S$40,000, derived from the eight years of the unexpired S$50,000 COE lifespan.

The spokesman added: "So effectively, the comprehensive cover for old cars is very limited for the policyholder. If he understands this and still wants to buy comprehensive cover, we will be happy to sell."

This article was first published on April 23, 2016.
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