motor insurance - vehicle valuations

We approach complaints about motor valuations in the same way that the former Insurance Ombudsman Bureau did. That approach has remained largely unchanged for many years and by now most firms should be aware of it. However, we still see a steady flow of complaints where firms appear to have handled matters differently – to the customer’s disadvantage.

Where we feel that it would not have been necessary for the customer to complain if the firm had followed good industry practice, then we may sometimes require the firm not only to settle the claim fairly but to make the customer a payment for the distress and inconvenience it has caused.

Most policyholders assume that their insurance policy will enable them to replace with a similar vehicle a car that has been stolen or damaged beyond repair. Our approach mirrors this. We want to see firms making a reasonable assessment of the car’s ‘market value’ – and then paying this amount. The ‘market value’ is the likely cost to the customer of buying a car as near as possibly identical to the one that has been stolen or damaged beyond economic repair.

This approach can come as an unpleasant surprise where policyholders have assumed they would get the amount that the car was worth when they first took out the insurance, regardless of the car’s actual market value at the time of the incident giving rise to the claim.

The fact that many insurers’ proposal forms include a question about the vehicle’s ‘present value’ undoubtedly causes confusion for many customers. For most transactions, the question has little relevance for the underwriting of the policy. So it would help if firms left this question out, or clearly explained its limited relevance to the settling of claims.

Of course there can be genuine debates about what represents a fair market value. Our starting point is to consider the approach the firm has taken. We would expect it to have consulted the normal trade guides and to have allowed for any difference from the norm in the car’s mileage or condition. In most cases, the firm should have assessed the market value as equivalent to the ‘guide retail price’ (the price that a member of the public might reasonably expect to pay at a dealership).

Sometimes the firm will argue that it would be fairer to use the ‘guide trade value’ (the price that a motor trader might pay). Normally this will be less than the market price that the policyholder will have to pay to replace the car. However, the trade value may be a useful indicator where the car was not in ‘guide retail’ condition or where there is evidence that the customer intended to buy a replacement privately.

Other sources of reference may be relevant when making or assessing a valuation. For example, we would expect the firm to look at the price guides available to the general public, especially where these suggest significantly different results from the trade guides. Specialist publications can help in the valuing of unusual or ‘classic’ vehicles. And it can sometimes be useful to get evidence from an independent engineer (or even from a firm’s in-house engineer), especially in relation to ‘non-standard’ vehicles.

Customers who dispute the firm’s assessment of a car’s market value often draw our attention to ‘forecourt prices’ advertised in local papers, and – increasingly – to prices quoted on internet sites. Generally we place little weight on such evidence. Advertised prices for cars are widely understood to be a starting point for negotiation, rather than a fixed price. And the information provided is often insufficient to ensure a like-for-like comparison of age, condition and mileage. But we do sometimes take local factors into account when deciding a relevant replacement cost. If, for example, the car has been bought recently from a reputable source, then this may be a sensible starting point for determining its market value.

Car owners often have a strong sentimental attachment to their cars. This attachment, together with the ‘value’ that they attribute to their vehicles – in terms of usefulness, reliability etc – means they sometimes have particular difficulty in accepting a perfectly fair valuation. For example, owners who have added special features and accessories, or carried out significant modifications, may dispute whether the insurer’s valuation would allow them to purchase a car as desirable as the one they have lost. But it is a fact that special features may not add substantially to a car’s market value. Indeed, in some more extreme cases they may actually reduce the value.

When a firm values cars that have been permanently modified, it may be appropriate to look at the closest equivalent vehicle, and to then make adjustments for the quality of the modifications. Policyholders may be disappointed if they are unable to replicate the exact modifications they made. However, our general view is that, provided the overall approach is reasonable, the firm is not required to cover the policyholder for the precise mixture of features of the previous – modified – car.

Finally, we see cases where the firm’s enquiries after an accident reveal that a car is not quite what its owner believed it to be – and that it consequently has a lower value than the owner expected. It might, for example, be a ‘grey import’ (a vehicle bought from an importer who was not authorised by the manufacturer) or it may have been ‘clocked’.

Where it becomes clear that the customer was aware of the car’s true origins, the firm may be justified in rejecting the claim in its entirety. But in many cases, the customer is likely to have been the innocent victim of a fraud. We generally consider that customers should receive the vehicle’s true market value, not the value of the car they thought they had bought. However, we may ignore problems that came to light only after the incident that gave rise to the claim (such as a hidden rust problem) if the owner was unaware of the problems and they would not have been apparent at re-sale.