The " Excess " Clause is No Disadvantage
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N the previous article I touched on only the fringe of the subject of insurance of goods in transit. There are many other points of general interest which should be considered.
First, I should acknowledge that much of the informatiOn in this article appeared in The Commercial Motor" several years ago, in the form of a continuous series of paragraphs. What l have done is to summarize those aspects which are of immediate interest to-day, having in mind the changed conditions which now prevail.
Last week, I dealt with an inquiry from a furniture remover who asked for some information about insuring his loads. Having effected this cover, he now complains that he had to bear what is called an "excess" of £5; that is to say, he had to pay for any damage or loss incurred . which was below that limit. i "Excess" Keeps Premiums Low
The relevant clause in his policy states that he must bear £5 of each claim that he makes under the policy and that the insurance company will pay only "in excess of" that amount. Now, strange as it may seem, this clause is really of benefit, not only to the insurance company but also to the insurer. It is largely due to the inclusion of clauses such as this that insurance premiums for goods in transit policies remain at their present reasonable levels. Even the most prejudiced haulier must see that if there were no excess clauses the price of policies would have to be increased in order to allow for the flood of small claims.
The excess clause, therefore, operates to the advantage of the haulier as, by eliminating these small claims, it has the effect of keeping premiums down to a lower level than would otherwise be practicable. There is another point, too; the annual premium, for reasons which I have already mentioned, is assessed on thlowest possible basis. Only two or three of these small claims would be required to wipe out the sums received by the underwriters, thus leaving nothing in hand to enable them to build up to meet the heavier and more substantial claims.
• Again, the inclusion of this excess" clause throws a certain amount of risk on the insurer and in that Way makes him take more care than he might otherwise do. This still further tends to reduce the number of claims and, in consequence, the premiums charged.
• The clauso is-sometimes varied and the amount increased in the case of an operatolwho has an unfortunate claims history. It is applied, I am told, not as a penalty but as a corrective. It is usually removed just as soon as it has served the purpOse of making the haulier more careful than he may have been in the past.
Another query relates to cases where a part of a load is damaged or destroyed and becomes the subject of a claim. The customer makes the first claim, on the haulier, who passes it on to his insurance company. The amount may be £500. The insurance company investigates and finds that whereas only half the load is damaged, the whole of it, according to the policy, should be worth not more than £600. The company accordingly pays only the half of I:600 and not the 1500 for which the haulier asks..
The haulier is disgruntled because, in his -.view,the insurance company should pay for any loss up to £500 in any one claim. As usual, however, the•insurance company is right, The point is covered by what is called the "average clause," with which everyone should be familiar. It operates with household policies covering losses by fire or burglary.
Dangers of Under-insurance Suppose a householder insures his furniture and household effects for £1,000 and a fire occurs which destroys about three-fourths of his property. A sum of £900 may be -required for its replacement, but the insurance company will pay, as a rule, only about £750. The company takes the view that, if three-fourths of the property is worth £900, then the whole must have beea worth more than £1,000. The property was, therefore, under-insured and the insurer must suffer accordingly.
This point is covered in most insurance policies by the average clause. This states that if a load be valued in excess of the amount covered by the policy, and a loss occurs, the insurance company will be responsible for only a proportional amount of the claim, the actual value being arrived at by comparison of the total value at risk and the amount insured. If, for example, the limit of insurance covered be £1,000 per load and a claim arises for £800, and if, on investigation, it becomes apparent that the balance of the load— the undamaged portion—be worth £400; then the insurance company takes the view that the load was insured to :only five-sixths of its value and pays only five-siXths of the claim.
Most hauliers carry loads which are noi of particularly ugh value 'and, in order to keep their expenses down, they nsure these loads accordingly, covering only the value of oads they generally carry. Occasionally, however, a load if high value comes along, such as tobacco. The question altich arises here is, should the haulier, having the possibility )f such valuable loads in mind, insure for the highest value oad he is likely to be called upon to carry; or should he nsure on a basis commensurate with his normal traffic, .caving all valuable loads to be the subject of special insurince arrangements. •
The objection to the first course I have already stated: it is expensive. The objection to the second is that it is risky. The haulier may forget to take out the extra insurance relating to one of the valuable loads and, sure as fate, that is the load which will be lost.
Penny Wise
The haulier who insures on a' low-value basis must tell his insurance company when he wishes the amount of insurance to be increased. Such advice must be given, of course, before the goods concerned are loaded onto the vehicle. The need for that special advice may quite easily be overlooked and, if it is, this is what can happen. After one or two cases where the loads have gone through safely, the haulier may be pleased at the amount of premium he has saved and be tempted to carry his own risk once too often. Several hauliers have learned this lesson in recent months, at a, price hundreds of times greater than the insurance premiums they would have paid—a serious matter in the case of a man with a small business.
Of the several ways of insuring goods in transit one which is generally to be recommended is that of taking the amount Of business done per annum as a basis. According to this method the premium is calculated on the haulier's own figure for probable earnings and an adjustment made at the end of the year to bring the premium in line with the actual amount the haulier has earned.
Hauliers with large fleets, and particularly those who use sub-contractors, should adopt this method. It is better than the usual alternative, whereby a sum is fixed to cover the load on each vehicle and where a flat premium is paid irrespective of whether trade is good or bad.
A Saving on Insurance
Another advantage of this method, known as the "haulageturnover basis of insurance," is that most hauliers occasionally deal with loads on which insurance is quite superfluous. For example, no harm can come to road material, bricks, coal and the like. It is a' simple matter to arrange with the insurance company for the earnings on such goods to be deducted from the total on Which the premium is paid. This often results in a substantial saving.
So far as the employment of sub-contractors is concerned the advantage lies in the fact that some of them have adequate insurances of their own and so the earnings on such loads can form yet a further deduction from the haulier's insurance returns.
Another benefit is that there is no need to specify vehicles when the insurance is arranged on this basis. Quite apart from the trouble this saves there is the added advantage that it entirely obviates those awkward cases where claims arise for goods on vehicles which, through some oversight, have not been added to the policy Another method of insuring goods in transit which, generally. is to be deprecated, is known as the "maximum at risk" policy. The haulier insures for a sum which is intended to cover all the loads carried at any one time. The risk inherent in such a policy is such that it may not really give the haulier the protection he requires and thinks he has got. The insurer fixes the sum to be insured according to his idea of the business he expects to do, as expressed in the value of the loads he will carry. As a rule he will base his calculations on the assumption That he Will be doing a steady business all the time. He may be right in theory but woefully wrong in fact.
There may be times when, as the result of bad weather slowing down the work of his own vehicles, he is forced to use sub-contractors. In that case there may be more loads at risk than he has bargained for in his original estimate. In the event of a claim arising at such a time a haulier may find himself forced to bear a proportion of the claim out of his own pocket by reason of the "average clause" which have already described.
There is this further point: the haulier, in calculating the amount of cover he wishes to have, makes his estimate on the basis of 100 per cent, loads every day. That is likely to be an optimistic view and his premium will thus be higher than it really needs to be.
A word of warning is necessary as regards trailers. A haulier who uses trailers should make sure that they are covered by insurance, no matter how he may use them. It is customary for trailers to be used with different vehicles. In such cases the. operator should insure the trailer loads separately. Only when a trailer is used constantly with one particular towing vehicle is it safe to insure vehicle and trailer together; and he should not overlook the necessity of insuring the load on the trailer.
Conditions of carriage are now fairly widely standardized; thanks in a large degree to the R.H.A. The haulier who is insuring his goods in transit, however, should read these conditions in company with the terms of his policy, to ensure that the . two are in agreement. If there be any difference he should discuss the matter with his insurance company and have them reconciled. The point to watch is that the haulier should not accept any responsibilities in his conditions of carriage for which he is not covered by insurance. Incidentally, there are certain things which cannot be so covered, as, for example, adequate sheeting of loads, dishonesty of employees and similar matters against which it is up to the haulier himself to take his own precautions.
Cover for Stored Goods
It is sometimes the case that an operator finds it convenient to unload goods and store them temporarily pending further carriage or delivery. The value of these goods, plus that of goods actually in transit, may quite easily, and usually does, exceed that for which cover would normally be taken. Underwriters will arrange to give protection for this, but it is necessary for the haulier, at the outset, to assess his requirements in this regard and advise his insurance company accordingly, in order that the insurance may be placed on an equitable basis, otherwise a fire or accident may leave him badly out of pocket. The clause relating to business of this sort is referred to as the "location clause."
Other subjects of importance are as follows:—
Fragiles. Here the haulier should appreciate the meaning of the term as it is interpreted by insurance companies. It does not apply only to glass and.china, as he might think, but also to marble, earthenware and enamel goods. If a haulier does not appreciate that point and if his policy, as is usual, specifically, excludes "fragiles" he may find himself at a loss in case of a claim from a customer for damage to such goods. Operators are, therefore, strongly recommended to study their insurance policies in relation to the kind of goods they may occasionally carry and make sure that they.are covered.
Handling Dangerous Loads Dangerous goods; If an operator carries dangerous goods at any time he should arrange for the special cover which is necessary. This is probably appreciated; what is not realized, however, is the number of articles which come under that description. Here are some of them: acids, oils with low flash points, explosives, raw cotton, grasses and fibres. Not only are such traffics excluded, but damage they may cause to other goods in the same consignment is also excluded.
Wear and tear. It is common in policies of insurance of goods in transit for a statement to be included barring risks of wear and tear. This expression has nothing whatever to do with the wear and tear of the chassis. It is chiefly applicable to second-hand goods and merchandise. Such items aa furniture and machinery are subject to wear and tear. . Occasionally, in a toad of furniture, there may be wious broken or damaged goods, such as cracked mirrors, which may not easily be distinguishable from wear and tear, and unless an accident had occurred there would be no proof that the damage occurred during transit.
It is wise for the haulier, in the case of valuable loads, to request the insurance company's representative to inspect the consignment prior to its being loaded. This may save the operator some nasty shocks.