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Tuesday 19.06.2018 | Name days: Nils, Viktors

Latvia Motor Insurers’ Bureau: car owners prefer reimbursements in cash

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Along with the economic downturn the number of road traffic accident victims – vehicle owners – who prefer receiving indemnity in cash, not as insurer’s paid repair service, is growing admitted the experts at Motor Insurers’ Bureau of Latvia (MIBL).

«Such trend can be to some extent explained by a desire to economize, because usually in such cases, the owners of damaged vehicles repair the car by themselves or choose to repair it at low quality services at much lower costs. Besides, it is possible that such auto services do not pay taxes,» indicated the Chairman of MIBL Board Juris Stengrevics.

He added if the car lesions are small, often they are not repaired at all. «It should be mentioned that this tendency is contrary to the pre-crisis period, when in most cases victims chose a prepaid service because it was easier and required less involvement, as well as guaranteed quality.»

In line with the Compulsory Civil Liability Insurance of Owners of Motor Vehicles Law (OCTA law), in case of road traffic accidents the damaged vehicle owners can receive payments for suffered losses in two ways: a prepaid service for the repair of a vehicle, or in cash, which is self-evident in vehicle death cases, but there is a right of selecting damage repair options.

Namely, if the indemnity claimer chooses to receive a cash settlement, then insurer is not responsible for the vehicle repair – car owners themselves have to ensure it.

MIBL indicated the reimbursement process in this case will be longer. Currently, if the damaged vehicle owner and insurer of the driver who caused the accident negotiate about the car service where the repair works will be carried out, then immediately after the accident, when the vehicle inspection has been done and the service estimate is adjusted with the insurer, the repairs may be undertaken. Whereas, if the damaged vehicle owner chooses to receive a cash reward, then, in accordance with the law, besides carrying out the vehicle inspections, the preparation of a loss calculation by an expert is necessary on the basis of which the insurer determines the amount of refund. It should also be noted that in line with OCTA statutory, insurers have to take decisions about the cost within a period of one month after all the required documents are received.

In addition, if the indemnity is received in cash, the damaged vehicle owner must take into account that compensation can be paid excluding the value added tax amount, as the service – a car repair – was not carried out.

The European countries’ practice has shown that insurer pays the insurance reimbursement in cash only in cases when the vehicle repair is economically unsound and the losses related to vehicle death are reimbursed. Insurance indemnity as cash payment is theoretically possible also in cases when the vehicle has not been significantly damaged, but then the vehicle owner has to keep in mind that a significantly smaller sum will be paid because taxes will be deduced from the actual calculated sum and the reduction will be based on the operational depreciation.

J. Strengevics points out: «In line with OCTA law, insurer’s task is to cover losses at such extent to ensure the restoration of vehicle. Respectively, if the vehicle is 10 years old, insurer’s task is to cover repair expenses to ensure the restoration at the pre-accident level. By choosing indemnity in cash, the losses are covered in accordance with expert’s calculations, where the price of spare parts is adjusted to the operating depreciation. This is one the main reasons for insurers and damaged vehicle owners’ disagreements, because the victim claims that insurer has to cover losses at the extent of a new car or new spare parts, despite the car’s true age.»

If insurer concludes that the repair costs of damages that the vehicle suffered in the accident exceed the car’s value before the accident, the vehicle owner will receive the compensation in cash.

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  1. Ren says:

    Money always creates the feeling of stability, no wonder car owners prefare payments in cash, and they can further choose the service.

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