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By getWorth CTO Mark Ridgway

Insurance values have not kept pace with car values since the Covid pandemic started. Car owners that experience a total loss could find their insurance pay-out well short of the replacement cost of a similar car – in some cases by hundreds of thousands of Rands.

GetWorth’s data analysts have spent years making sense of hundreds of millions of used car prices and testing these in the real world against the actual market by trading cars. The team conducted an in-depth comparison of actual used car market prices against insured values and the results are alarming.

Our experts have highlighted this situation that could give car owners sleepless nights. When insurance companies insure cars and there is a total loss, where the car is stolen or written off, they need to decide on a Rand amount to pay out. The approach varies between insurers, but the most common 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 and microchip shortages. Used car prices have increased rather than fallen and there are many cases where the current market values are out of sync with the long-term book levels.

The effect is not evenly spread. For example, if you own a Ford EcoSport with average mileage, the book value will be reasonably in line with the current market value. However, if you own a Toyota Land Cruiser 200 and your insurance is based on book value, you are probably deeply under-insured – by 15% to 30%.

The other big discrepancy is the mileage effect. Because most insurers do not know the mileage of a person’s car, they use the average book value. This is a value based on an average mileage for a used car of a certain age. For example, a six-year-old car would be assumed to have around 100 000km on the clock.

However, lower-mileage cars have a higher market value. A 2016 BMW X5 xDrive30d M Sport with 100 000km would retail around R600,000. The same car with only 50 000km would retail at or above R700,000. Mileage makes a massive difference to price, especially on newer cars or luxury models.

However, it is critical to understand that these differences will only affect incidents where there is a total loss. For a fender-bender or damaged windscreen, the insurer will pay for the repairs – the market value of the car doesn’t come into play.

It’s a confusing situation so car owners should request from their insurance company or broker what the insured value on their car is for a total loss. Then do some research whether it is reasonably in line with current market prices.

If it is out of line, ask your insurer if they can adjust the insured value. GetWorth is in the process of developing a pricing tool to assist car owners to quickly estimate market prices.