Car owners stung for thousands by gap in insurance coverage

Experts are warning against agreed value car insurance policies, which can leave policyholders as much as $19,000 out of pocket.

Millions of car owners are underinsured by thousands of dollars because the cost of replacing their motor vehicles has soared way beyond what they are covered for.

Analysis by The Daily Telegraph reveals the gap between major insurers’ valuation estimates on popular models and current prices is as much as $19,000.

Policyholders whose vehicles are written off would have to fork out that extra amount to buy the same car as they had.

The pricing discrepancy is due to insurers failing to fully factor in what figures from Datium Insights-Moody’s Analytics show has been a near 90 per cent increase in the worth of used cars in Australia since the start of the pandemic.

To avoid being caught out, insurance experts are warning consumers against “agreed value” policies.

The gap between agreed value and market prices on a 2019 Toyota Hilux is up to $19,000. Picture: Carsales

“You are better off just going for market value,” said Canstar financial services group executive Steve Mickenbecker.

“Let the insurance company carry that risk,” Mr Mickenbecker advised.

“Otherwise you have to stay on top of what’s happening in the car market – and who’s got time to do that?”

An iSelect spokeswoman also said people “may want to consider speaking with their insurers to understand if market value would be a more suitable level of cover at this time rather than the agreed value option on their policy.”

She noted that “market value car insurance can be a cheaper option” as well.

According to a spokeswoman for the Insurance Council of Australia (ICA), “a market value policy will provide reasonable replacement cost of a vehicle based on the ‘fair market price’ of the vehicle at the time of loss or damage.”

One of the insurers whose agreed value estimates The Telegraph analysed was Allianz, whose spokeswoman said: “It is not in the interests of any insurer to either undervalue or to overvalue the vehicles that we insure – that’s why we use an external third party with expertise in this area to set these values.”

“Our intention is that the Agreed Value selected by the customer reflects the cost of replacing it with a similar car as the one insured should it be written off in an accident during the policy period,” the spokeswoman added. “There is no intention at all that the Agreed Value should be below the actual Market Value of that vehicle.”

An NRMA Insurance spokesman said it encouraged customers to review the sum insured when renewing their policy. AAMI referred questions to the ICA.

Sydney man Daniel Ianello knows the downside of agreed value policies.

Daniel Ianello with his replacement VW Tiguan. Picture: Jonathan Ng

Mr Ianello bought a top-of-the-range VW Tiguan brand-new in 2020 for $58,000. It was badly damaged in a crash then written off after the insurer’s repairer botched the fix.

By the time he received a payout, the same car cost $75,000.

“It’s a big difference,” he said.

He ended up paying $60,000 for a mid-range Tiguan.

Mr Ianello suggested car owners review their agreed value “or consider market value.”

He has changed insurers to a provider that will let him pick the repairer.

Originally published as Car owners stung for thousands by gap in insurance coverage