Many South Africans’ cars may be underinsured, leading to an insurance payout well below the replacement cost of a similar vehicle.
This is according to a study by getWorth, which has tracked the market prices of used cars in relation to insurance values for several years.
The company concluded that, since the start of the Covid-19 pandemic in 2020, insurance values have not kept pace with the price of vehicle sales.
In the worst-case scenario, a car could be underinsured by hundreds of thousands of rands, said Mark Ridgway, Chief Technical Officer at getWorth.
Underinsured
The most common way that insurers decide on the amount to pay out in the event of a vehicle loss, such as in the event of theft or a crash, is to use the “book value.”
“Book values are based on long-term trends. However, the used car market has been severely affected by the Covid supply chain disruptions, microchip shortages, etc.” said Ridgway.
“Used car prices have increased rather than falling and there are many cases where the current market values are out of sync with the long-term book levels.”
The degree to which this is true depends on the vehicle brand and model. For example, Ridgway explained that a Ford EcoSport’s book value has stayed reasonably in-line with its market value.
However, something like a Toyota Land Cruiser 200 is likely to be underinsured by 15 to 30%, he said.
Mileage also plays a big role in determining the book value of a vehicle, as most insurers do not track the exact mileage of a person’s car but rather assume an average mileage based on age, with a six-year-old car being assumed to have roughly 100,000km on the clock, for example.
This means that cars with a mileage lower than the assumed average may also be undervalued.
“A 2016 BMW X5 xDrive30d M Sport with 100,000km would retail around R600,000. The same car with only 50,000km on the clock would retail at or above R700,000,” explained Ridgway.
“Mileage makes a big difference to price, especially on newer cars or luxury models.”
getWorth advises local motorists to inquire with their insurers about the payout value for a total loss of their vehicle, and to do research about whether this value is reasonably in line with current market prices.
“If it is out of line, ask your insurer if they can adjust the insured value,” said Ridgway.
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