High value of used car market leaving drivers out of pocket on car insurance 

Eayl Machlis, General Manager of General Insurance and Banking at Compare Club

Personal finance marketplace company Compare Club reveals Australian drivers could be inadvertently under-insured by an average of between $2,000 and $6,000 on their comprehensive car insurance policies, based on the most popular vehicles assessed.

High levels of demand for used cars in Australia combined with supply issues have “flipped the used car market on its head,” according to Eayl Machlis, Compare Club’s General Manager of General Insurance and Banking, as many older vehicles are actually going up in value.

This is potentially leaving many motorists out of pocket at a time when bad weather once again threatens to take many cars off the road for good. Agreed value is when insurers and drivers agree on a replacement value if the car is written off. It’s usually more expensive than a market value policy, which means the insurer replaces the vehicle at its market value.

What is the insurance-agreed value disparity today?

Agreed value policies offered drivers more protection but with used cars going up in value, owners of the most popular vehicles who have an agreed value policy see a disparity of thousands of dollars when the insurer attempts to replace their vehicle like-for-like.

Researching multiple insurers, Compare Club found Australian insurers were offering agreed value between $33,525 and $58,110 for a Toyota HiLux, while used cars ranged from between $44,990 and $63,500. That means owners of a HiLux – one of Australia’s most popular vehicles – could be underinsured for as much as $11,465 in the event of a total loss claim; should the insured select Agreed value as opposed to a Market value policy.

The highest potential out of pocket payment for more popular vehicles in Australia follow: 

  • Isuzu D-Max – $13,025 difference* 

  • Kia Sportage – $9,265 difference* 

  • Toyota Corolla – $13,025 difference* 

  • Hyundai Tucson – $6,013 difference* 

  • Mitsubishi Triton – $5,475 difference* 

  • Hyundai i30 – $5,140 difference*

  • Ford Ranger – $3,925 difference*

  • Toyota RAV-4 – $3,090 difference* 

*difference in sub limit between an agreed value, and the market value

What are the factors behind this disparity?

This unique scenario is created by a series of factors. Firstly, supply chain challenges over the last two years have led to a shortage of vehicles and the price of used cars have increased; whereas the value of the vehicles would typically have gone down, due to wear and tear.

Another factor is the large volume of written off vehicles which need replacing due to La Nina weather conditions leading to excessive flooding over the past two years, putting pressure on new and used car prices. Agreed value has been the sensible insurance option for drivers. It means having guaranteed insurance value if your car is written off and needs replacing. 

On the other hand, being insured at market value means if you write off your car, you could be given less than what you paid for it, due to depreciated values of vehicles. But the on going supply and demand challenges in Australia have ultimately flipped that switch.

What does the market landscape mean for drivers?

Machlis explained that there is a large difference between the highest and lowest agreed value you can apply to your vehicle – a difference of as much as $20k in some instances. “With Australia facing another summer of floods, many more motorists could be unknowingly left severely out of pocket if their vehicle needs to be written off,” Machlis commented.

“Insurers usually have very sophisticated data models on the depreciation in value of vehicles, so it is unusual and shows how much the used car market has been flipped on its head. Typically the agreed value price range tends to be a lot narrower. It suggests that insurers are uncertain in this current market as to how much vehicles are currently worth.”

“You can see where insurers are hedging their bets on the default agreed value they suggest when you come to modify your quote – we found the suggested market value was around $3k – $4k above the lowest agreed value price available. There’s a good chance people could be underinsured if they go with the default sum insured option as dictated by the Insurer.”

“Aussies should check their policy to be sure on what they’re covered for if their car is written off and adjust their policy or switch insurers if they’re worried about being underinsured.”

For more information visit compareclub.com.au