Car Payments: Are you keeping track?
Tracking contracts are easy to get into, but harder to get out of.
It may seem like a good idea to sign a three-year tracking contract for your car and avoid the upfront payment of the tracking device itself, but if you sell the car within three years or you can no longer afford the monthly payment, things can turn bad pretty fast.
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Insurers insist, in most cases, that you have a tracking device fitted to your car, and pay a tracking company for monitoring.
You can either buy the device outright, upfront, and then pay only for the monitoring, or - as most dealerships suggest - enter into a three-year contract with the tracking company, in which case you get the device and pay for it over those three years, as you would with a cellphone contract.
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The contract might seem like the best option, but it really isn’t.
Here’s why:
The monthly payment is higher, of course, because you’re paying for both the monitoring AND the hardware hidden somewhere in your car and you remain locked into that three-year contract whether or not you still have the car, or whether you can afford it.
This week I got a heartbreaking email from Vinodha.
I am presently unemployed and do not receive any form of income besides the help of my family. I advised my tracking company to cancel my services with them from the time I was unemployed and they said that I am bound by a 3-year contract. Time and again I have advised them that I do not have the funds to pay them and due to my unemployment and advised them to remove their device from my car. Nothing was done about it. They have been sending me messages and calling me to make payment. Now they have handed me over to an attorney for collection. Please can you assist me in this regard? This is causing undue stress on me. I have been applying for jobs every day but due to this pandemic, it is difficult to get something.
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If Vinodha had paid upfront for the device, she would have been able to give a
month’s notice of cancellation of the monitoring and that would have been
that.
That said, I’m going to see what I can do to help her.
The fewer contracts you are committed to the better in these uncertain times. As we’ve all learned this past year, your life can be turned on its head almost overnight - what you could afford last month, you suddenly can’t afford this month.
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Are you paying the same car insurance premium as you were this time last year?
If you’re still working from home and are likely to remain doing so, doing far less mileage and generally at much lower risk of having your car damaged in a car crash, or stolen, and you haven’t claimed for anything, you really should be paying a substantially lower premium.
Here’s why: the motor insurers have done and continue to do very, very nicely out of the pandemic’s impact on our driving habits.
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Most gave their clients discounts on their car premiums during the first months of hard lockdown, but claims statistics show that the industry is continuing to benefit from significantly reduced claims as work-from-home has become the new normal for many.
The industry’s motor claims ratio for January to September 2020 was an average 51%, dramatically lower than the 63% for the same period in 2019.
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This is revealed by claims statistics submitted by the insurers to the Financial Services Conduct Authority. The claims ratio is the percentage of premium income that insurers pay out in claims.
While total premiums paid in the hard lockdown months of the second quarter - April, May, and June - were just R42m less than in the first quarter of 2020 (R10.111bn compared to R10.153bn), the claims ratio plummeted from 58% to 41%.
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So while the insurers received R42m less in premiums (Q2 vs Q1) they paid out a whopping R1.7bn less in claims in the months when the roads were the quietest.
Interestingly, by the third quarter - July, August September - total motor premium income increased to a sum even higher than the pre-lockdown first quarter - R10.171bn - while the claims ratio, at 54%, was 4% less than in Q1.
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Claims versus premiums information for the last quarter of 2020 is not yet available, sadly. It would be interesting to see what the second wave did to claims ratios.
So that reduced motor claims ratio is proving to be very beneficial for insurers' balance sheets.
WHAT TO DO:
If your risk has plummeted since last March, your premium should reflect that.
If it doesn’t, make that call to your insurer, and if they’re not willing to budge, I suggest you do some like-for-like cover comparisons and then make the appropriate move.
Contact Wendy
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