Car Modifications, insurance

[shadowninja 0]

Howdy all,

I have some case studies & an article about car modification from the NZ insurance ombudsman, will post them here if anyone is interested.

Yea or Nay.

[Gus 5]

please do

[Grant 4]

Yeah, definately post, and Andrew, can you make them a sticky.

Cheers

[shadowninja 0]

From Australian and NZ Institute of Insurance & Finance Journal.

“Modifications to Vehicles – New Zealand’s Insurance and Savings Ombudsman reviews the important topic of motor vehicle modification – with some interesting case studies.”

When motor vehicle insurance is being arranged, insurers need to know whether the vehicle has been modified. There is usually a question on the proposal / application requiring details of modifications, and if cover is arranged by telephone similar information is requested.

However what exactly does the term ‘modifications’ mean and what information do insurers really require of consumers in relation to them? The simple answer is that insurers want to know about changes to the vehicle which alter it from the manufacturer’s original specifications for the particular make and model of vehicle.

The reason insurers want to know about modifications is to determine whether they wish to accept or continue insuring a particular risk, taking into account factors such as the type of vehicle, the nature of any modifications and the age and experience of the driver. Simply put, some modifications can substantially alter and increase the risk presented or as originally understood by the insurer. A powerful vehicle, which has been extensively modified in terms of performance, being drive by a young and inexperienced driver statistically presents a very high risk to insurers.

Why, then are so many policies avoided for non-disclosure of modifications and, as a result, claims unable to be paid?

What is a modification as referred to by an insurer? Modifications can be categorized as follows:

1. those which enhance the performance of the vehicle

2. those which are attractive to thieves and which affect the security of both the vehicle and any accessories within it.

Problems for Consumers: Understanding what needs to be disclosed.

Our experience is that, in considering the insurer’s requirement for disclosure of modifications, consumers only think in terms of those modifications which affect a vehicle’s performance such as a larger engine fitted, modified air intakes, exhaust system and racing suspension.

Consumers often do not consider additions or accessories, which do not affect the vehicle’s performance as ‘modifications.’ Alterations and additions (such as mag wheels, spoilers, body kits and special paint jobs) make the vehicle more attractive to thieves and, therefore, a greater risk for an insurer.

Special mention must be made regarding the fitting of expensive stereo systems, some of which are worth more than the vehicle itself. This is regarded as a very important modification, which increases the risk of theft of the vehicle.

Most insurers specifically ask for details of expensive stereos over a certain stipulated value and failure to disclose such a modification is a clear breach of the policy.

When modifications should be disclosed to an insurer-

A further complication is that some people only think of disclosing some modifications, which they make to the vehicle, subsequent to its purchase. This is notwithstanding that the vehicle might have already been substantially modified when they purchased it secondhand.

If a vehicle has been modified when insurance is being arranged, the modifications should be advised to the insurer at that time. If a vehicle is modified after commencement of the policy, the insurer must be advised at the following renewal of the insurance, unless the policy wording clearly indicates they be advised sooner. In our experience, very policies do so.

The implications of not disclosing modifications-

Many consumers do not realize that if they do not tell an insurer about the modifications to their vehicle any claim may be declined or the policy avoided from inception or renewal. For the consumer avoidance means that their policy is treated as though it never existed, which can affect other claims they may have made. Avoidance also carries with it a stigma, which often affects a consumer’s attempts to get insurance in the future.

How can this be remedied?

It is clear to us that some insurers could do a lot more to assist and advise their customers regarding the type of modifications they wish to know about. The question which is asked by telephone, or which appears on proposal/application forms, is usually very general and does not provide guidance about the type of changes to the vehicle, which should be disclosed. As already explained, there is a perception that only modifications which fundamentally change the vehicle’s original performance specification should be disclosed. We believe the nexus between some types of modifications, such as an expensive stereo system and mag wheels with the increased risk of theft as a result of fitting these items, should be explained to consumers. Best practice suggests that questions on modifications are for insurers to make clear and not for the public to try to interpret.

Our experience is that insurers expect modifications to be advised when they are made, yet the policy wording does not convey this requirement. If insurers want modifications to be advised when they are made, as soon as possible or immediately we believe the policy should clearly state this requirement.

If an insurer wishes to avoid a policy for non-disclosure (of modifications) the common law position is that avoidance is from inception or from renewal of the policy. However the common law can be over-ridden by very specific policy wording, which makes the consumer’s duty to disclose modifications more onerous, or imposes an ongoing duty through the period of insurance.

Best practice suggests that insurers, as the parties wanting to obtain the information are in the best position to make it clear what they want to know and when, rather than relying on consumers to be proactive in advising of any modifications. It might also assist consumers by asking them to check with their insurers before making major modifications to ascertain if such modifications will change the terms of the policy.

Some vehicles are ex-factory with so-called modifications already fitted – why is this different to a model which has modifications fitted later? The answer is that the insurer is always concerned about changes to the vehicle’s original specification. Modifications fitted at the factory are standard to the particular model.

Clearly there are some changes involving fitting of accessories, which will not be material to an insurer and need not be disclosed, such as fitting a tow bar, monsoon shield, or headlamp covers. However our main concern is that consumers are sufficiently alerted to the need to disclose modifications. This is so that, if consumers are in any doubt about any aspect of modifications they can clarify this with the insurer concerned.

(Ian Opray ANZIIF).

[shadowninja 0]

Case Study No 1: tyres & mags

(Note C = Consumer, P = Participant Company)

C’s vehicle was stolen from her property and she made a claim to P for the theft.

P’s investigator interviewed C and her son, and they provided signed statements. The statements revealed that the vehicle, which was owned and driven by C’s son, had been modified.

P avoided the policy from the commencement of cover and declined to consider the claim. P stated that C had not disclosed modifications to the vehicle, when C completed the proposal. C argued that the question on the proposal relating to modifications was ambiguous and related to a change in the structure of the vehicle.

The Case Manager believed the policy provision relating to modifications did not impose a continuing duty of disclosure.

Therefore because P was avoiding the policy ab initio, the only modifications which P could rely on were those which existed at the commencement date of the policy. On this basis, the only modifications which C could have disclosed when she completed the proposal were 14 inch Avanti mags (the mags) and the 205mm rotational tyres (the tyres).

The Case Manager’s investigations established that the tyres and the mags were not factory standard for the vehicle. The Case Manager determined that the information about the modifications was material and should have been disclosed to P.

Complaint not upheld.

[shadowninja 0]

Case Study No 2 : special terms and conditions

In March 2003, C arranged insurance for his vehicle with P. In July 2003, C’s vehicle was stolen. C reported the theft to the police and made a claim to P for the theft of the vehicle.

P’s enquiries indicated that some modifications had been made to the vehicle in the two to three weeks prior to the theft. P avoided the policy from the date the modifications were made and declined to consider the claim.

C argued that the non-performance enhancing modifications did not affect the policy and believed that P should have paid the value of the vehicle, excluding the modifications.

When C took out cover, the bank officer asked him if the vehicle had been modified. The Case Manager believed that C’s attention had been drawn to the importance of information about modifications. C argued that he had intended to advise P about the modifications, but he had been very busy.

The policy specified ‘if any relevant circumstances change or may change during the time we provide your insurance then you must tell us… if we are not told we have the option to decline any claim, or avoid this policy from the date of change.’ The Case Manager believed the policy did not require C to tell P about the modifications immediately and it was a question of what would be a reasonable period of time for the notification of changes. The Case Manager considered the fact that the modifications did not occur without some planning. Therefore the Case Manager believed that two to three weeks was more than enough time for C to have advised P of the modifications.

The Case Manager found that prior to P knowing about the modifications, it had already imposed special terms, such as an additional $1,000 excess on C, and an exclusion of cover if the vehicle was driven by, or under the control of C’s father. Therefore the Case Manager believed that C was already aware that the insurance was subject to special terms and conditions.

The Case Manager believed that P’s decision to discontinue cover, because of the modifications, appeared to be consistent with its previous underwriting decision when it decided whether or not to accept the insurance and, if so, on what terms.

Complaint not upheld.

[shadowninja 0]

Case Study No 3: CD wheels and sound

In May 2000, C insured her vehicle with P. At the commencement of the policy, the vehicle did not have standard tyres and had mag wheels. By the first renewal of the policy, C had added a Momo steering wheel to the vehicle. By the second renewal, C had modified the vehicle with the addition of a Clarion CD player, two amplifiers and two speakers.

In early 2003, the vehicle was stolen and C made a claim to P for the theft. P declined the claim and advised as follows:

‘As you were required to advise [us] of the installation of the stereo when it was installed… the policy will be voided effective 14 days from the estimated installation date… It is understood that an accurate installation date can not be determined, in light of this the policy will be cancelled effective 12 months prior to the vehicle being stolen (27th January 2003). Addition of 14 days notice is also required here making the policy cancellation date 12 February 2002.’

The Case Manager believed P could not retrospectively cancel the policy and nor could it void the policy mid-term, as it had purported to do in other communications with C. As a correct reason for declining the claim had not been communicated to C, the Case Manager believed P should meet the claim.

The Case Manager discussed this with P and P agreed to meet C’s claim.

Complaint Settled.

[shadowninja 0]

Case Study No 4: finance and heavy modifications

In August 2001, C insured a vehicle with P. In December 2001, the vehicle was stolen from outside C’s house. C made a claim to P for the loss.

In the course of the interview with P’s investigator, C disclosed a 1997 claim for another vehicle. C had not disclosed finance on the vehicle at the commencement of the polic. C also told the investigator that the vehicle was heavily modified and had provided details of the modifications to P’s custumer services representative when he arranged the insurance with P. P avoided the policy and declined to consider the claim.

C had provided a letter from P’s customer services representative, which suggested she was aware the vehicle had been restored, although she did not appreciate the extent of the modifications.

The Case Manager noted that P was unable to produce a copy of the application questions asked or C’s answer to them. Therefore, the Case Manager was unable to determine whether C failed to disclose the 1997 claim or the extent of the modifications at the inception of the policy.

As there was a lack of evidence, the Case Manager did not believe P was entitled to avoid the policy on the basis of non-disclosure of information on the application.

Complaint Upheld.

[bimmer boy 21]

wow thats real interesting aye, that stuff is good to know

so what they are basically saying is dont change a thing (thats if your young i guess)

[shadowninja 0]

What it is really hammering home is the whole non-disclosure issue.

If you don't tell your insurance company about modifications they don't have a chance to even consider the risk.

If you are able to explain the mods in an even-handed way, and agree to cover terms then you're home sweet.

[E30-323ti 66]

Yes, Very interesting.

But it doesn't say whether insurance can be terminated when you advise of any modifications after the policy is commenced!?!?!

'Cause if they can't then that is an easy way to get a modded car insured.

When I insured my E30 I advised it had been modified, they wanted to know what they were and the value of each, also advised it had been certified.

Got insurance no probs, Only 3rd party at the mo' I will need to get it valued before I can include fire and theft.

[Carl 3]

Right, i've rung State since they're my company, they consider modifications anything outside of factory specification. So an automatic to manual transmission change is only a modification if any of the replaced components aren't factory standard.

Also, my excess when up a couple of hundy because of the suspension change

But as far as I or anyone should be concerned, you're far better off having an excess increase than having an invalid insurance policy

[Carl 3]

Oh, and you don't need certificates for modification changes, only a valid warrant of fitness - unless of course the modification actually requires a cert like lowering below the legal limit

[shadowninja 0]

But it doesn't say whether insurance can be terminated when you advise of any modifications after the policy is commenced!?!?!

Most insurance policies have a provision to cancel the cover for any reason with 14-days warning. If they don't have that clause then they can simply decide not to renew your cover when it 'expires' at the end of the year.

[Homy.D.Clown 0]

just a note from the other side of insurance companies

State - now IAG insurance..if you can avoid dealing with them or any of their

smaller companies (eg NZI)

I recomend AMI..very easy company to deal with as far as claims go(in comparison to IAG), the only catch is they dont deal with insurance brokers...so you have to set up the policy on your own(as most ppl do anyway)

I know most young ppl deal with state because of their being known to insure young drivers, but next time your due for a policy renewal..consider the alternative because if you have a claim you might get the shaft from any insurance company (and IAG love the young for one very simple reason..they pay hudge premiums ,hudge excess..and frequently dont get paid out on cliams because of any loophole they can find)

also declare everything to the insurer

stereo/mags/non factory spoiler kits/exaust/extracters/intakes./race seats/

roll cage ..etc

[*sic 1]

just a note from the other side of insurance companies

State - now IAG insurance..if you can avoid dealing with them or any of their

smaller companies (eg NZI)

I recomend AMI..very easy company to deal with as far as claims go(in comparison to IAG), the only catch is they dont deal with insurance brokers...so you have to set up the policy on your own(as most ppl do anyway)

I know most young ppl deal with state because of their being known to insure young drivers, but next time your due for a policy renewal..consider the alternative because if you have a claim you might get the shaft from any insurance company (and IAG love the young for one very simple reason..they pay hudge premiums ,hudge excess..and frequently dont get paid out on cliams because of any loophole they can find)

also declare everything to the insurer

stereo/mags/non factory spoiler kits/exaust/extracters/intakes./race seats/

roll cage ..etc

hmm now i just gotta get some insurance.. appears NOONE will touch me..

stupid race car

[bumpstop325 0]

i hate state, i just wanted to state that.

try motorsportnz, sic???

[shadowninja 0]

Yeah AMI is good.

State is trying to shake their reputation as the worst & ugliest kid on the block, but they've got a long way to go. I still recommend staying away from them too.

[Guest Spargo]

I use AMI, resonable premiums and are they're really good with regards to letting you choose where you get your car repaired and on claims and such.

[Guest Andrew]

no where will insure my car! someone help

[*sic 1]

no where will insure my car! someone help

welcome to the club.

i shall call you "apprentice"

[Guest Spargo]

welcome to the club.

i shall call you "apprentice"

or "bitch"

[Guest Andrew]

Here is my report

National Auto Club have a flat rate of $1425 .. and excess of 1400 (jesus). They didn't care about the mods.

State - Said yes.. but only third party no fire and theft and thats 27 bucks a month and only worth 7000

AMI - This is how the conversation went

me - "hi i'd like to get a quote on car insurance"

ami - "for what car sir"

me - "a 1984 bm.. "

ami "*interupts* how old are you sir"

me "19"

ami "sorry sir we don't insurance BMWs to drivers under 25"

me "but its TWENTY YEARS OLD"

ami "has it been modified"

me "... a little"

ami "sorry sir we cannot cover that car"

me "ARG!"

*hung up*

any suggestions who to try next?

[petone 0]

Thats odd, I didn't have too much trouble getting insurance. Then again the only mods really are stereo and suspension, and it is only a 1.8. Both AMI and NAC quoted around $750 for full insurance for a 18 year old driver on full license with no previous claims. AMI wanted dual immobiliser though. and AMI excess was $700 but $1000 excess for a theft claim. The main problem with my car is that car is worth about $2500 and the stereo about $1800. Just ring again and see if you get a different operator. Or go and see them at the branch.

[Guest Andrew]

Petone: I never had an issue getting insured on the 318 or 320 either. The problem essential is the value of my mods exceeds the value of the car - and its an engine swapped 2.5 ltr manual with suspension work to a 19 year old.

Anyhow - i called Tower.. who were very helpful - but again informed me they couldn't insure an under 21 on a 2.5 ltr. I tried telling them it was 2994 cc.. but to no avail hah.

They however passed me on to someone called Insure Direct - who took all my details. Made me spill out every mod (right down to the urethane bushes). And they wanted the value of my car orginally at 10500 dollars.. which was fine with me. They then came back and said they'd take note of the engine swap as a mod - but weren't interested in what it actually cost and agreed to insure the car for 7500. The came back and said for 7500 they'd only offer full insurance.. which was around 1200 a year.. not bad.. but i'm a poor uni student. So i dropped the value of the car to $7000 and got fire and theft for 800 a year.. not bad. But even better was they'll take the value of the car at 7000 if its valued by my mechanic.. and then valued by one of thiers. My mechanic valued the car at 9000 bucks.. thiers will probably say 6000 - and it will sit nicely in the middle.

So . .. i recommend these guys. They only took me cause I have a squeeky clean driving record - no tickets or anything + I had to have full for over a year.

Insure Direct (by Inbroke Corp)

0800 505 885

AMI gets the bigs thumbs down, as does National Auto Club, State, AA. Tower is OK cause they put me onto Insure Direct.