It’s very common and frequent in our day-to-day lives, whenever there’s a road accident, to hear one of the parties involved or the party at fault say, I have all-risk insurance, let’s go to my insurance company. Or, on the other hand, when a future customer wants to know the price of buying car insurance, they ask, how much does all-risk insurance cost?
By far, not only do people use the term all-risk insurance, but they also believe that car insurance is an all-risk policy, i.e. they believe that it offers comprehensive cover, protecting the insured and the insured asset against any and all events that could cause damage to the insured object (the insured vehicle).
That is why, faced with this scenario, the inevitable question arises as to what, after all, is all-risk insurance?
Although the terminology is informally used to designate broad coverage for a variety of unforeseen events and damages that may arise as a result of the risky activity of driving a vehicle on public roads, technically, there is no total coverage of damages in car insurance that encourages the use of the terminology All Risk Insurance.
In reality, all-risk car insurance refers to optional insurance cover, which arises from the conclusion of an insurance contract, with the aim of covering not only damage caused to third parties, but also damage caused to the insured asset itself (the insured vehicle), regardless of who is responsible for the claim.
The technical designation of “all risks” insurance is Own Damage cover, i.e. it is formally called Own Damage Insurance, which in general terms aims to cover not only damage caused to third parties, but also damage caused to the insured asset itself (the insured vehicle). It is an optional form of car insurance cover, formed through the conclusion of an insurance contract that covers a variety of damages caused to the insured object itself (the insured vehicle) and damages caused to third parties.
Possibly the meaning and scope of the term all-risk insurance is that it not only covers damage caused to third parties, but also includes damage caused to the insured vehicle itself. However, it is not the correct term to refer to cover for damage caused to third parties and damage caused to the insured object itself.
The logic of car insurance can be explained by 2 essential points:
(i) There is compulsory insurance created by law, known as compulsory motor vehicle liability insurance, informally known as third party insurance;
(ii) Existence of Own Damage Insurance, which is optional car insurance cover, created by signing a contract between the insured and the insurer, with the aim of including the insured vehicle in the damage cover. Informally known as all-risk insurance.
In a nutshell, the difference between these two types of motor insurance cover lies in the fact that compulsory motor third-party liability insurance, as the name implies, is compulsory, and the State imposed and still imposes, by law (Law n°2/2003 of January 21), that anyone who wants to travel on public roads in a motor vehicle must have the relevant insurance. In addition, Compulsory Motor Third Party Liability Insurance only covers damage caused to third parties, while Own Damage Insurance, in addition to being optional and covering damage caused to third parties, includes damage suffered by the insured themselves to their vehicle.
Although own damage insurance covers damage caused to third parties and damage suffered by the insured object itself, this does not mean that it covers all risks, because the insurance contract itself (general, special and particular policy conditions) always specifies a number of events that are not covered by the respective own damage cover, such as (often stipulated in the general conditions of car insurance from various national insurers), loss of profits, loss of benefits, cab expenses or any consequential loss, loss or damage resulting from, or caused by wear and tear, mechanical breakdowns, road fines imposed to the detriment of the claimant, accidents caused by speeding, consumption of alcohol, drugs and narcotics, among other exclusions, damage resulting from wars, acts of terrorism, etc.
Therefore, the main danger of referring to own damage insurance as “all risks insurance” is the false expectation of the cover offered. Although own damage insurance covers a wide range of damages to the insured vehicle, it does not cover all types of risks.
When uncovered events occur, the insured may feel frustrated to discover that the insurance does not cover every situation imagined, resulting in conflicts with the insurer.
Some policies, in the case of Own Damage car insurance, usually specify the respective coverages exhaustively, such as coverage for collision, crash, collision and rollover, theft and robbery of the vehicle, theft and robbery of accessories, fire, natural phenomena, among others.
Therefore, it is best to use the correct term, “Own Damage”, which accurately reflects the nature of the insurance, avoiding confusion and ensuring that policyholders properly understand what is or is not covered by the policy.
By: Nicolau Vilanculos – Claims Manager
