The Importance of Service Indemnity Insurance
Unexpected environmental, social and political factors over the past few years have caused disruption to a wide majority of business industries, Motor Trade included.
It is imperative, now more than ever, that businesses protect themselves. One way for the Motor Trade to protect itself is with service indemnity insurance or defective workmanship insurance.
This article will describe in further detail the available insurance solutions specifically crafted for tradesmen, motor traders, and body shops that work with cars and other vehicles in Ireland.
But first, let’s have a look at some of the factors that have impacted the Motor Trade Industry over the last 12 months. Our experts at Campion Insurance have provided some insight:
By the end of 2021, many hoped that we had seen the worst of rising inflation; supply chain issues were getting better after all, whether that was because of the decreased cost of shipping goods, or automakers predicting improved supplies of semiconductor chips. The beginning of the war between Russia and Ukraine in February 2022 dampened these high hopes, resulting in a spike in the price of oil and raw materials.
The conflict in Ukraine has had a significant impact on the automotive industry, causing friction in supply chains, which has ultimately led to reduced production capacity. As a result, the supply of parts sourced by vehicle manufacturers from Ukraine continues to be affected, wiring harnesses especially. Some transport routes and the ability to make financial transactions with Russia have also been impacted.
To mitigate the effects of these disruptions, automotive manufacturers have sought alternative suppliers for parts wherever possible. However, this process takes time to ramp up, and delays have compounded the already low vehicle inventories.
Car manufacturers are increasingly integrating advanced technology into their vehicles, as seen with automatic emergency braking, adaptive cruise control, and connected car technology. As these features became more prevalent in vehicles, the complexity and cost of vehicle repairs have grown, with additional expenses attributed to vehicle scans and calibration becoming more common.
Combined sales of ECVs and Hybrids (unplugged versions) now account for almost 44% of new cars registered in 2022. The share of diesel cars has fallen each year since 2015. The Society of the Irish Motor Industry stated that in January 2023, new Irish car registrations in Ireland were up 9.4%, a record month for EV sales.
Used Cars & Other Vehicles
In the first 6 months of 2022, used car imports declined by circa 33% year on year, compounding a shortage of used cars in the market. The volume of used cars imported from the UK declined by 63%, now representing just 45% of overall used imports. Meanwhile, Japanese used imports have almost tripled by volume year on year, and their used car import share has increased to circa 40% as of Q1, 2022.
What is Service Indemnity Insurance For Motor Trade?
As you may know, this insurance policy provides coverage to businesses that offer professional motor trade services (for example; repairs carried out on new or second-hand cars). It protects the companies from potential financial losses, resulting from claims made by customers because of errors or omissions in a service provided. These claims could arise from various factors, such as faulty workmanship, negligence, and incorrect advice or recommendations given by the business. Service Indemnity Insurance typically covers legal costs and damages awarded to the individual who has made a claim against you or your business.
Why Do Motor Traders Need Service Indemnity Insurance?
Although most motor traders are aware of the importance of having Road Risks insurance while a vehicle is being driven on the road, unexpected situations can arise during repair work. As a motor trader, mechanic, or body shop, the vehicle that comes in for repair can sometimes experience issues following the service or repair work that was carried out. That is why having Defective Workmanship insurance, also known as Service Indemnity insurance, is an essential coverage that cannot be overlooked.
What Does Service Indemnity (Defective Workmanship) Insurance Cover?
Defective Workmanship insurance is typically included in a motor trader’s combined liability insurance policy, also known as motor trader combined insurance. While it may be assumed that public liability would cover defective workmanship in motor vehicles, this is not always the case. It is essential to have specialist extensions in place to provide the necessary coverage.
Examples of Possible Claims
The coverage provided by Defective Workmanship Insurance can be quite complex, with various scenarios to consider. Let us explore some of those potential scenarios.
A customer has taken their vehicle to you for a service. While attending to the timing belt, it is obvious that the tensioner needs to be replaced. In the middle of fitting a new belt and tensioner, the phone rang, and another worker took over to finish the job. The customer collects the car, but 100m down the road, the engine cuts out. The engine has suffered serious damage and a new engine is needed altogether.
What is covered, and what is not?
Defective Workmanship Insurance works just the same as any other liability insurance. It covers the resultant damage only. Therefore, whilst the engine might need to be replaced and would be covered, the insurance would not cover what the original job was for, i.e. the belt and tensioner.
You accidentally cause a fire while wiring a new car console. The dashboard is damaged as a result. In this instance, only the resultant damage would be covered, plus any associated wiring. However, the console that you were fitting would not be covered.
The vehicle was with you to have a new wing, suspension, and brakes fitted to the front of the car. All were fitted accordingly before being taken away by the customer. Let’s say that on the way home, however, the customer claims that the vehicle wouldn’t stop. This not only means there’s damage caused to the vehicle but also potential loss and injury to a member of the public. The brakes have failed because of your negligence when rebuilding the vehicle. With the right insurance policy, you could safeguard yourself from professional negligence in such instances.
A used car is with you for service, and the apprentice is asked to change the oil. While doing so, it goes unnoticed that he/she has filled the engine with oil beyond the recommended amount. The result is a destroyed engine, costing tens of thousands of euros.
Oversights such as this (professional negligence) could potentially be covered under your service indemnity insurance policy.
The above scenarios are to provide you with some insight into what may or may not be covered with a defective workmanship insurance policy. It is best to seek expert insurance advice for any specific situation you experience to find out exactly where you stand.
Should You Have Service Indemnity Insurance?
Undoubtedly, having Service Indemnity Insurance is crucial. While it may not be mandatory; if you work with cars or other vehicles in Ireland, can you afford to operate without it?
Motor Traders’ Insurance can be a complicated matter, with various policies available in the market. To determine which policy is best suited to your business, speak with one of our experts at Campion Insurance today. We’ll be able to provide you with the right information from the current car market in Ireland, to the most suited insurance options for you.
Option One: Give our team a call on 0818 300 301
Option Two: Visit our website to learn more