Covid19 has affected industries the world over. For the insurance industry, the unexpected surge in used car prices has meant that there is a risk that vehicles are underinsured. This surge has been caused by a shortage in the supply of new cars, international travel bans and by people avoiding public transport in the current Covid climate.
The increase in second-hand car prices is as high as 50% in some models on their 2019 value.1 This could cause an issue for motorists if their car is stolen or written off in an accident and their insured value doesn’t reflect its replacement cost.
Market Value vs Agreed Value
When it comes to insuring a vehicle, car owners are usually offered a choice between market value or agreed value for instances where the car is written off or stolen.
Market value is the value of a vehicle at the time of the incident the customer is making a claim for. This is determined by market prices, the age and condition of the vehicle and includes any modifications, accessories, registration, CTP and other on-road costs. So, if a total loss claim is lodged, the market value is the amount it would cost to replace the vehicle with a like for like in the same area. This value is regularly updated and will change over the policy term.
Agreed value, on the other hand, is a fixed amount for the vehicle decided when a motorist takes out a new policy or renews an existing one. If a total loss claim is lodged, this agreed amount is what the policy holder will receive after any deductions, like any unpaid premiums.
It’s up to the individual to decide whether market or agreed value is best for them. However, in the current climate, insurers may need to make adjustments so that customers aren’t at risk of underinsurance if their agreed value doesn’t match the current increase in prices.
Making changes to meet the climate
Anabelle Vo, Corporate Communications Advisor at IAG says that insurers are aware of the high demand for used cars and subsequent price increases. “We’ve been aware of this and the challenge it can present for customers in terms of the market value of their vehicle should they unfortunately suffer a total loss of their vehicle in an accident,” she said.
“Our processes adjust agreed values or sum insured in-line with market trends.”
The current surge in second-hand car prices won’t last forever, but it’s hard to predict when it will settle. For now, customers need to be aware of their risk of underinsurance. Reading their policy and talking to their insurer will help avoid any surprises in the unfortunate event that their car is written off or stolen.
To review your car insurance, find out more here.
1 Mcgowan, D, September 2021, Soaring car prices ‘insures’ problems, The Sunday Telegraph. Easy Street is a division of Community First Credit Union. Community First acts under its own AFSL and under an agreement with the insurer Insurance Australia Limited ABN 11 000 016 722 trading as CGU Insurance. Any advice is general only and does not take into account your personal circumstances. Consider the Product Disclosure Statement (PDS) and Target Market Determinations (TMDs) available from www.easystreet.com.au to see if the product is right for you.