How soaring used car values could cost Australian drivers

Overinflated prices for used cars in Australia mean owners should check the fine print on insurance papers – or risk being caught short.

Rising used-car prices could leave drivers underinsured. Picture: Toby Zerna

Rocketing second-hand car values could leave motorists underinsured — and thousands of dollars out of pocket — if their vehicle is stolen or destroyed.

The sharp increase in used vehicle prices — some by more than 50 per cent of their 2019 worth — has been triggered by new car supply shortages, international travel bans and a reluctance to use public transport in a Covid-19 climate.

Data compiled by Carsales.com.au showed the median price of a Ford Ranger ute climbed by 34.3 per cent compared with pre-pandemic prices.

Used prices for dual-cab utes such as the Ford Ranger have exploded.

Popular vehicles such as the Toyota LandCruiser (56.9 per cent), Mazda3 (38.5 per cent), VW Golf (29.2 per cent) and Toyota Corolla (20.5 per cent) also rose dramatically.

Based on these hikes, some used Toyota LandCruisers would have risen by more than $50,000 since Covid hit.

And the spike in prices means many drivers now have insurance policies that may not cover a gap between what their car is insured for, and its real-world replacement cost.

James Martin, insurance expert for consumer comparison website Finder.com.au, said people should take a closer look at what their car is worth and what they are insured for, “to make sure you are covered”.

“Underinsurance is when you fail to take out enough insurance to completely cover the costs if something goes wrong,” he said.

Carsales data shows second-hand prices for the Mazda3 have increased by nearly 40 per cent.

“Essentially, when your insurance policy pays out, if it’s not enough to pay for everything that it was intended to cover, then you’re underinsured.

“With the scarcity of many makes and models of vehicles in Australia, your car may be worth more now than it was when you took out your insurance.

“Not all comprehensive car insurance policies are created equal. Some have more benefits, while others are overpriced for what they offer … it really does pay to shop around.”

Annabelle Vo, a spokeswoman for the giant IAG group that includes NRMA Insurance, said the coronavirus pandemic and subsequent supply challenges led to an increase in used car demand, pushing prices up.

“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.

“We have been adjusting our processes to ease these issues and adjust agreed values or sum insured in-line with market trends.”

Rachel Demarco made sure her new VW was insured for the correct price. Picture: Toby Zerna

Sydney publicist Rachel Demarco received less money than expected when her car was written off this year.

The replacement vehicle is insured for a sum that reflects its replacement cost.

“We bought the car second-hand from a family member and got a good deal on it.

“It’s worth a lot more than we paid for it. But the car is insured for its current market value.”

Originally published as How soaring used car values could cost Australian drivers