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Joined: 30 May 2005
|Posted: Mon Jan 23, 2012 6:20 pm Post subject: motor insurance: vehicle valuation
|motor insurance: vehicle valuation
1. what this note covers
This note covers our approach to the valuation of a vehicle which is treated as a total loss (popularly known as a "write-off") because either:
the insurer estimates that the repairs will cost more than the vehicle is worth; or
the vehicle has been stolen and is never found.
Most motor policies only require the insurer to compensate the policyholder for the market value of the vehicle immediately before the damage/theft. Disputes may be referred to us where the policyholder thinks the vehicle is worth more than the insurer has offered.
Exceptionally, an agreed-value policy requires the insurer to pay a previously-agreed amount. But such policies are unusual and tend to be used for "classic" cars. The fact that the insurer’s proposal form asked the policyholder what the value of the vehicle was does not, in itself, make it an agreed-value policy.
A typical case might be:
The insurer has "written-off" the vehicle and offered £8,000. The policyholder is aggrieved because he paid £13,000 for the vehicle only 18 months before the accident, and has recently seen similar vehicles advertised for £10,000. The policyholder also says that the insurer asked him what the vehicle's value was when he took out the policy – and that is what he wants.
2. our general approach
In most cases, we assess the market value as the retail price which the policyholder would have had to pay for a comparable vehicle at a reputable dealer, immediately before the date of the damage/theft.
This may be lower than the price at which the vehicle is advertised, as the dealer may have built in a margin for negotiation.
It is likely to be higher than the price payable in a private sale or at an auction, and higher than the trade value (which is the price a dealer would pay before adding its mark-up).
We are likely to award the policyholder the full retail value, even if he/she inadvertently under-estimated the value of the vehicle when filling in the proposal form or luckily bought the vehicle for less than it was worth. And we have seen exceptional cases where a vehicle’s value genuinely rose between the date it was bought and the date of the damage/theft.
If the policyholder over-estimated the value of the vehicle when filling in the proposal form, or the claim form, that is not relevant to valuing the vehicle for the purpose of the claim. We are still likely to award the actual retail value.
Assessing the value of a used vehicle is not an exact science – though we strive to be as consistent as reasonably possible. We take into account all relevant evidence:
We pay most attention to valuations given in motor-trade guides, such as Parker, Glass and CAP. These are based on extensive nationwide research.
Evidence from an independent engineer can be helpful, if available, particularly where the vehicle is not a standard one (for example, because it has been heavily modified).
Evidence from an insurer’s engineer may also be helpful, but we will need to assess the independence of the report.
We do not usually find advertisements for similar vehicles very persuasive. A vehicle may often be sold for less than the advertised price. And small differences in mileage, year of registration, model type etc - can significantly affect the value.
We do not often uphold a complaint about the valuation of a vehicle where, within a reasonable time, the insurer has offered the full retail value (not the trade value) in accordance with the main motor trade guides – unless it is an agreed-value policy.
3. agreed-value policies
Agreed-value policies are not common. They usually relate to valuable or "classic" vehicles where the policyholder has an investment to protect and the vehicle's value is unlikely to depreciate substantially or at all. The insurer will have assessed the premium on the basis of the vehicle's agreed value and is obliged to pay that amount if the vehicle is "written off".
Confusion may arise where a policyholder believes the policy is an agreed-value one simply because the proposal form required a statement of the vehicle’s value and/or because the policy schedule shows a value for the vehicle (usually based on the value in the proposal form). Usually, the policy will just be an ordinary "market value" policy. We understand that insurers ask the question about value for other reasons (for example, to help detect fraud), though it is not surprising policyholders get the impression that the information is relevant to the claim.
4. vehicle details
First, we check the correct model, age, condition and mileage of the vehicle – and the date of the damage or loss. Sometimes insurers or policyholders get these wrong.
The model and age can be checked in the Vehicle Registration Document (V5) issued by DVLA (the Driver and Vehicle Licensing Agency). The insurer usually has a copy on the claim file. If not, the policyholder should have the original.
5. motor trade-guides
Next, we check the motor trade-guides – which are published monthly. Parker’s guide is available to the general public. Glass’s guide and CAP guides are available to insurers but not to the general public. We have access to them all. Because valuation is not an exact science, the figures can differ considerably from one guide to another.
We use the editions published for the month in which the loss or damage occurred, because we are assessing the market value immediately before the incident. And we assume a vehicle in good condition, with average mileage, unless there is good evidence to the contrary.
Parker's Guide: We usually use the figure in column A1, corresponding with the retail price for a vehicle in good condition. There is a self-explanatory table for adjusting for higher/lower than average mileage.
Glass's Guide: This gives two figures – the retail value (which we usually use) and the trade value. The back of the guide includes tables which show how to adjust values for higher/lower than average mileage differences. Some of the cases we uphold are where the insurer has used Glass’s Guide but taken a short-cut, such as just averaging the retail and trade prices for a higher-mileage vehicle.
CAP’s Guide: This is available to us on a searchable computer database. We insert the date for the valuation and the mileage – and then search for the correct make and model (often, only the registration number is required). The results are displayed automatically.
Older vehicles: Some of these guides publish editions specifically relating to older used vehicles. The guide prices and fair market value should take account of fair wear and tear, which over time may include minor damage. The presence of minor rust or dents, or a higher mileage, is less likely to detract from the guide price than with newer used vehicles.
6. if the guides show different values
Our general approach is to consider whether the insurer's offer is a reasonable one, in the light of the three guides. If the figure in one guide is significantly out of line with the other two, we are likely to disregard the out-of-line figure – whether it is higher or lower. Where it is significantly lower, we are unlikely to consider that the insurer’s offer is reasonable if it is based on the significantly lower figure – or based on an average which includes the significantly lower figure.
Where the insurer offered £7,000 in line with guide A:
if guide B gives a figure of £7,000 also, but guide C gives a figure of £7,500, we are likely to consider the offer reasonable – because it is in line with two of the three guides;
if guide B gives a figure of £6,800 and guide C gives a figure of £7,200, we are likely to consider the offer reasonable – because the differences are not significant;
if both guide B and guide C give a figure of £7,500, we are likely to consider the offer is less than reasonable – because it is out of line with two of the three guides.
What is a significant difference will vary with the value of the vehicle. A variation of £200 may be insignificant for a vehicle worth about £7,000 but significant for a vehicle only worth about £1,000. A variation of £100 or less will not usually be significant.
7. engineer's reports
An engineer’s report can be useful evidence, from someone who has actually inspected the vehicle, of what its precise details are. We welcome this from either party, as it can help in assessing the fair market value of the vehicle.
We do not usually find advertisements for similar vehicles very persuasive. A vehicle may often be sold for less than the advertised price. And small differences in mileage, year of registration, model type etc can significantly affect the value. But they may provide some assistance, if they are treated with caution.
In a few cases, where the vehicle does not feature in the readily-available guides, advertisements may be the only evidence available. Examples include vehicles with foreign specifications which have been personally imported into the UK. And where a vehicle has been heavily modified, there may be a specialist market for it – which may affect its value (upwards or downwards).
9. vehicles recently purchased second-hand
If the policyholder only recently bought his car second-hand, we are likely to assume that the price paid was the market value, unless the insurer can provide sufficient evidence to the contrary.
10. "new for old" seldom applies
Most motor-insurance policies require the insurer to provide a new replacement only where the vehicle is written-off within a specified time – typically within 12 months – after the date of first registration. After that, motor-insurance policies rarely require the insurer to provide a new replacement. Where the vehicle was pre-registered by the dealer before sale, we usually treat the vehicle as if it was first registered when it was first sold.
Disputes can arise about this where the "new vehicle provision" says that the insurer is only liable to provide a new vehicle if the same make and model (and sometimes specification) is still available in the UK market. We are likely to consider it unfair for the insurer to pay less than what it would have cost the insurer to replace the vehicle with a new one if it had been available.
11. accessories and other unusual features
Policyholders often believe that account should be taken of money they have spent on the vehicle, accessories they have added, or other special features.
Usually we are not persuaded that these increase the value of the vehicle.
Money spent on maintenance is required to keep the vehicle in retail condition and is unlikely to increase its value. Failure to spend money on maintenance may justify a below-guide valuation.
Adding some accessories (such as satellite navigation or improved radio/CD equipment) will often increase the value of the vehicle – though not necessarily by as much as the amount spent.
Other accessories or features (such as special paint schemes, stripes or spoilers) may increase a vehicle’s value, or may decrease it in the eyes of many purchasers.
Exceptionally there may be rare cases where we are satisfied that some quality accessory or another unusual feature (for example, a celebrated history or famous former owner) might increase the value. But such vehicles are often specially-insured through an agreed-value policy.
12. left-hand-drive vehicles
The full retail value is based on a vehicle designed for the UK market – with the steering wheel on right-hand side. Usually left-hand-drive vehicles are worth less, and we are likely to consider it fair for an insurer to deduct up to 10%.
Exceptionally, with some "classic" cars, a deduction will not be appropriate. For example, a 1950s Cadillac will appeal to a specialist market and the lack of right-hand drive is most unlikely to diminish its value. On the contrary, part of the appeal may lie in this authentic feature.
Most motor policies contain an express requirement that the vehicle must be maintained in a roadworthy state. If so, where there is good evidence that the loss or damage was caused (or substantially contributed to) because the vehicle was unroadworthy, we are likely to consider it fair for the insurer to reject the claim.
In other cases, the insurer might reduce the payout on the basis that the vehicle was not in good condition. If so, where there is good evidence that the vehicle would have failed an MOT test, we are likely to consider it fair for the insurer to take this into account in assessing its value.
14. vehicles previously "written-off" and then repaired
Most buyers are (rightly or wrongly) put off by the knowledge that a vehicle was previously "written-off", no matter how well it was later repaired – and this can affect its value.
If the policyholder knew the vehicle was a repaired write-off, he/she is likely to have paid less for it. So we are likely to decide that it is not unfair for the insurer to make an appropriate deduction – not more than 20%, unless the insurer can provide good independent evidence for a higher deduction.
But if we are satisfied that the policyholder innocently bought (and insured) the vehicle in complete ignorance of its history, and the repairs were not obviously noticeable, he/she is likely to have paid full price (and a full insurance premium) for it. So we are likely to decide that it would be unfair for the insurer to pay less than the full market value.
15. loss of use and courtesy cars
Usually the policyholder is entitled to a courtesy car only where the policy specifically provides for it. Even where the policy does provide for a courtesy car, this will usually be in limited circumstances (for example, whilst repairs are carried out by a repairer approved by the insurer) that do not apply where a vehicle is "written-off". This often comes as a surprise and disappointment to the policyholder.
Usually we only award the policyholder compensation for loss of use of the vehicle where the insurer unreasonably delays, or wrongly declines, the claim. Exceptionally, we may say that the insurer should compensate the policyholder for loss of use where:
the insurer’s overall presentation of the policy gave the consumer a legitimate expectation that a courtesy car (or compensation for loss of use) would be provided; or
the claim was badly administered (for example, the insurer initially took the car to be repaired, delayed several weeks and then decided it was a "write-off" after all).
Where we consider it fair for the insurer to compensate the policyholder for loss of use:
If the policyholder hired a car for this period, we might require the insurer to refund the hire-car charges (plus interest).
If the policyholder did not hire a car, we might require the insurer to pay compensation for other reasonable transport expenses incurred plus inconvenience caused by lack of a car.
If we award compensation for inconvenience caused by lack of a car, we tend to award around £10 per day, if it had a material effect on the policyholder, and depending on the individual circumstances – for example, whether the policyholder had "free" access to another vehicle, availability of public transport etc.
16. salvage of the "written-off" vehicle and contents
Once the policyholder accepts payment of the full market value, the insurer becomes the owner of the salvage. If the policyholder asks to keep the salvage, the insurer is entitled to deduct what it would have been able to sell the salvage for. This is usually not very much.
But what if the policyholder complains that the insurer (or its agent) disposed of the salvage before paying the full market-value? At this stage, the vehicle still belongs to the policyholder, and we take the view that the insurer should not have disposed of it without first obtaining the policyholder’s consent to the settlement of the claim – even if the insurer said it was only acting in the public interest by keeping a badly-damaged vehicle off the roads. In such circumstances, and unless the insurer returns the salvage, we usually award the policyholder compensation for inconvenience.
If the policyholder had personal belongings in the vehicle when the insurer disposed of it without consent, we are likely to award the cost of replacing these – usually on a like-for-like (rather than a new-for-old) basis.
"Written-off" vehicles are categorised – according to the severity of the damage – under a voluntary code agreed between the Association of British Insurers (ABI) and salvage dealers (ABI Code of Practice for the Disposal of Motor Vehicle Salvage):
Category A vehicles are to be kept off the road and crushed.
Category B vehicles are also to be kept off the road, but could be broken up for spare parts.
Category C vehicles are repairable, but uneconomical to repair.
Category D vehicles are repairable economically, but written-off for some other reason.
Since 7 April 2003 all category A, B and C vehicles notified to DVLA must pass a Vehicle Identity Check before they can be returned to the road. This is an identity check, to confirm that the vehicle is the original one and not stolen, and does not check roadworthiness or repairs. (The Road Vehicles (Registration and Licensing) (Amendment) Regulations 2002)
17. outstanding premium instalments or premium refunds
Usually the policy is a yearly contract and the full premium is payable even if the vehicle is written-off during the year. If the policyholder paid the yearly premium up-front, no refund is due. If the policyholder was paying the yearly premium by monthly instalments, the outstanding instalments are still payable.
The insurance policy will usually provide for an excess amount which the policyholder must bear personally (for example, the first £100). So the insurer is entitled to deduct the excess from the market value.
The amount to be deducted may vary, depending on who was driving – for example, the insurance policy for a family car may have an excess of £100 when the car is driven by one of the parents and an excess of £500 when it is driven by any of their children who are under the age of 21.
19. interest on the amount of the claim
We usually decide that the insurer should pay the policyholder interest on the amount of the claim – calculated from the date of the incident (not from the date of the claim) to the date of payment. This is because the policyholder has not had the use of the vehicle, but the insurer has had the use of the money. The rate is likely to be 8% per year simple, though the law may require the insurer to deduct tax from the interest.
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