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News Article : Insurance in all but name needs investigating
Category: Short-Term Insurance : Motor Vehicle
Author:Nigel Benetton
Email:[email protected]
Posted:11 Jul 2007

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Waive good bye to your money ...

All car rental companies include in their daily rates a charge for insurance, referred to as ‘Collision Damage Waiver’ (CDW) and ‘Theft waiver’ (TW), intended to protect the client in the event he has an accident with the rental car, or it is stolen.

CDW is sometimes called super damage waiver (SDW), while theft waiver is also variously called ‘theft protection’ or super theft waiver (STW).

By paying for the waivers clients can limit their exposure to a so-called ‘excess’, say of R1 800 or no more than R3 000.

Clients are rarely aware of the additional waiver fee as they are usually presented with an all-in rate, say, of R265 a day, plus a contract fee of R25. Fuel costs are additional to this.

An analysis of the estimated total of R290 (aside from the fuel charge) reveals the insurance bill is R153 per day, or about 53% of basic costs.

Now this begs several questions:

  • If car rental companies are charging insurance, isn’t this illegal in terms of the Short-term Insurance Act 1998, which requires that such businesses be licensed to operate as insurers?
  • If clients are being charged insurance then they should be afforded the appropriate advice. It is alleged that in all instances no car rental reservations clerk is licensed in terms of the Financial and Intermediary Services Act 2002 to provide advice. Isn’t this also illegal?
  • If clients have no option but to buy the insurance from the relevant car rental company, isn’t this ‘Conditional Selling’, also an infringement of the Short-term Insurance Act?
  • When you consider the vehicle in this example, an Opel Corsa Lite, costs R71 400 (at current prices) how can rental companies justify an insurance premium at the rate of 78,2%  — that is, R55 845 (365 days times R153)?

Our survey of rates charged by six rental companies in South Africa, as reported in the accompanying story, led to several other observations:

  • They all charge virtually the same rates for a given model;
  • They all levy these waivers (insurance) as a compulsory charge;
  • All personnel at the call centre reservation desks referred to these waivers as ‘insurance’.

In many cases it appears that car rental companies are now charging more for insurance than they are for rentals. So what business are they in?

Furthermore, where does the money for the waivers go? And how is it accounted for? Indeed how many claims does a rental company receive?

One source we interviewed said that they received “very few” claims for damage or theft. When pressed, he suggested less than 5% of vehicles were affected in a given year. In other words the waiver scam is a license to print money. In any case, in less than 15 months the receipts are enough to pay for a new vehicle.

Even if it were proved the process was legitimate, that rental companies were genuinely passing the premium onto a licensed underwriter and the rental companies themselves had, say, a binder agreement from that underwriter to collect premiums, the rates are highly excessive.

It is very doubtful such underwriter would be allowed by any rental organisation to enjoy such largesse at their expense and it is alleged that somehow the money remains ‘in house’.

In any case shouldn’t the consumer have a choice as to where he buys his motor insurance or, if you want to use their terminology, his waiver protection? I guess many insured clients would pay very reasonable additional premiums if such an add-on as ‘car rental cover’ could be introduced by their insurance company.

When you consider that a vehicle valued at less than R72 000 is costing R55 000 a year in insurance, it should cause alarm bells everywhere. These practices have continued unabated in the rental market for years and years, and have become such a significant part as to have migrated (without a licence) such companies from rental operations to insurance operations.

Avis was quick to point out that the practice of charging for waivers was, in fact, not insurance, “which we are not allowed to charge,” said a fleet manager. “It is merely a waiver of the major portion of a loss.”

Like all major rental businesses Avis operates a risk management programme insuring (with an insurance company) against catastrophe (such as a jumbo jet crash landing in its car park, or a major hailstorm damaging large numbers of vehicles), but self insuring for theft, damage and so on.

Internally, it sets an excess of, say, R50 000 per claim. So if a vehicle was stolen, the rental client would have to pay R50 000 towards the replacement of the vehicle if he had not been sold the waiver.

It is this waiver, says Avis, that reduces his liability to R2 000, maybe R3 000. In this event, R50 000 is then paid from the internal self-insurance reserves of Avis, R3 000 by the client, and the balance by the respective insurance company.

But what form of protection is this, if it isn’t insurance? All rental clerks call it insurance. And the use of the term ‘excess’ is a dead give away, a term used exclusively in insurance circles and understood as such by most motorists.

Even if rental companies suffered total losses of 20% of their fleet each year (which they don’t) they are making a massive profit out of a business that is not car rental business, but a form of insurance in all but name. This whole matter requires serious investigation by the authorities.


Getting quotes from the car rental companies ranged from comical, inarticulate, through to confusing, and occasionally efficient.

Clerks were puzzled when asked for “the full story” and eventually coughed up more detail, but were confused about the tourism levy, what the rate was, or on which amount it was levied.

The same confusion concerned the airport levy, although one company emphatically confirmed that “it was charged on all contracts regardless of hire location.”.

One clerk admitted, “I am not in a position to answer all your questions.” We were then disconnected while being transferred to “the pricing manager”.

When confronted about the strange case of the “free kilometres”, yet being charged for fuel, another reservations assistant replied, “Yes, I see what you mean; I will speak to my manager about it.”

The amounts ‘reserved’ against the credit card varied a lot and was not always explained clearly by the clerk. Some called it a ‘refundable deposit’ as if the amount was actually transferred from the credit card account; another called it a credit card ‘hold’; others called it an ‘authorisation’ on the card which is ‘fully released’ if the vehicle is returned in order.

For a one day hire one company took a seven day authorisation of R4 770 – a bit of an imposition if you wanted to use your card for holiday spending. One clerk talked about “adding a fuel deposit” but drilling down to a clear explanation proved impossible.

The upshot arising from the sometimes lengthy interviews was that it is policy not to require much skill on the part of reservation clerks since they aren’t supposed to answer detailed questions about pricing. Clients are simply expected to swallow a fait accompli.

Which perhaps leaves us with another possible definition of the word, ‘waiver’: it seems to be, to waiver your money good bye ...

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