I have been hand-holding an insured recently through a vehicle claim. His pride-and-joy SUV was submerged in flash floods.
The insurance company offered to settle the claim on a constructive total loss basis. That means that the cost of repairing the sustained damage would be equal to or more than the insurance cover and so, the insurer pays what is called the insured declared value, or IDV, in full as the claim. The IDV is the value the vehicle is insured for under the policy. Although it implies that the insured has declared this as the value of the car, insurance companies offer a set value for each make, variant and model (denoting the year) according to their internal guidelines. While it approximates to the market value, you can tweak it to your satisfaction when you take the policy or renew it.
Incidentally, there is also something called a total loss claim. This is when the vehicle is stolen/lost or damaged beyond repair and reuse. Here too, IDV is paid. The vehicle’s Registration Certificate (RC), is then surrendered to the Road Transport Authority (RTA) for cancellation. The insurance policy is cancelled. The insured/claimant is not liable for any future third party liability claims involving the vehicle.
The vehicle, or what’s left of it, termed salvage, now belongs to the insurer. The insured can retain it and pay the salvage value to the insurer or have it deducted from his claim amount.
What about salvage in the case of a lost or stolen vehicle? If and when it is recovered, the salvage belongs to the insurer. Insurance companies sell salvage off at auctions periodically.
Sometimes the vehicle has some commercial value. Somebody who can repair and use/ resell it, or can use it for parts and would be willing to buy it. If so, the insurance company is liable for IDV less the salvage buyer’s offer and the vehicle title, the RC, will be made over to the buyer.
In the claim I have referred to above, a buyer was identified by the insurer as part of the claim settlement process and suggested to the insured.
Interesting questions came up in the claim, leading to a lot of head-scratching by all three parties — the insured, the insurer and the salvage buyer. They involved timely transfer of the vehicle vis-a vis third-party liability on the vehicle and GST on the sale. The RTA angle added further flavour. We will see the three valid points of view in the next instalment of Cover Note.
(The writer is a business journalist specialising in insurance & corporate history)