The power to settle financial complaints.
The power to settle financial complaints.
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:
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.
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.
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 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.
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.
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.
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's Market Value Manager 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 Market Value Manager: : 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.
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.
For example:
Where the insurer offered £7,000 in line with guide A:
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.
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).
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.
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.
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.
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.
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.
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.
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:
Where we consider it fair for the insurer to compensate the policyholder for loss of use:
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):
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)
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.
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.
contact our technical advice desk on 020 7964 1400