Record spike in insurance firms ripping off drivers over value of their car

Exclusive: Drivers of BMW, Mercedes and Land Rover cars are worst affected with underpayments of £1,000, according to research

A teenage girl’s first car is written off in a Midlands crash (Supplied)

Motorists are being short-changed by insurers when their car is stolen or written off, with underpayments for the value of a car hitting a record high.

It is the latest blow for drivers who are already struggling with soaring insurance costs. Premiums have rocketed by 48 per cent over the past year, as revealed in our exposé into the great car insurance con last month.

Complaints about car insurance have also risen to a four-year high. Undervaluing vehicles when they are stolen or beyond repair is one of the top grievances lodged by policyholders with the Financial Ombudsman Service.

Now, exclusive data shows that the average amount drivers received below the market value of their car jumped to £616 last year, almost tripling since 2016 from £215. In 2018, the average underpayment dropped to £122, but it has been climbing ever since.

David Tarsh, a consultant from west London, said he was offered £2,000 less than the market price by Aviva to fix his BMW after his car was written off by two accidents, neither of which were his fault.

The lowball offer was from Solus, the garage owned by Aviva.

Mr Tarsh said he eventually received a satisfactory cash-in-lieu settlement, which has been sufficient to get the car fully repaired.

David Tarsh’s BMW being towed away for repair - he says he was offered £2,000 less than the market price by Aviva to fix his BMW (Supplied)

Offering a price lower than fair market value is not allowed under Financial Conduct Authority (FCA) rules.

Tackling the problem is understood to be a priority for the regulator in light of the cost of living crisis and the consumer duty rules, introduced in July.

The new regulations require firms such as banks and insurers to put customers first and give them a fair deal and The Independent has passed the new data to the FCA.

In June, Direct Line was ordered to look back over five years of claims after admitting it underpaid some car and van customers.

The FCA has told other insurers to act on the issue, to put “these wrongs right and where necessary provide redress to affected customers”.

Simon England, founder and managing director of ALA Insurance, which provided the figures, said drivers were facing a double whammy of higher premiums and potentially “losing out when it comes to the payout offer from insurers”.

He added: “It seems [some] insurers are preying on the vulnerability of consumers at what can be a very stressful time. They are at liberty to offer whatever they see fit, which doesn’t always appear to be financially fair.

“It’s important to demand a fair valuation from your insurer when you claim and don’t be afraid to query how they arrived at their offer figure.”

ALA Insurance which offers specialist cover like GAP – guaranteed asset protection – which is designed to make up the difference if an insurance payout falls short.

It analysed more than 3,500 claims and found drivers faced an average gap of 4.4 per cent between the market value and payout. In 2018, the gap was just 1.4 per cent.

The FCA told The Independent: “After finding evidence that some customers were losing out, we warned insurers to make sure they were providing customers the right amount for their written-off car.

“We are monitoring closely how firms are settling claims and will continue to act if we find they’re not handling claims fairly and promptly.”

David Tarsh was eventually compensated by Aviva (Supplied)

According to ALA Insurance, the car brands likely to suffer the biggest underpayments are BMW, Mercedes-Benz and Land Rover.

A typical BMW driver could be out of pocket by £1,390 when lodging an insurance claim if their car was written off or stolen. Someone driving a Mercedes could lose out on £1,021 on average, while a Land Rover owner could lose £897.

James Daley, founder of consumer group Fairer Finance, blasted insurers for “prioritising shareholders over consumers”.

He noted: “Claims levels on motor policies are fairly low, and when claims do come in, it’s only right customers are put back in the position they would have been before the incident.

“Those insurers that engage in penny-pinching – giving consumers less buying power to replace their vehicle – undermine consumer trust, not just in their own company but the whole industry.”

Martyn James, a consumer rights expert, added: “It’s absolutely unacceptable for there to be such glaring differences in the market value of a car and the money that is being paid out in claims.”

He called on the insurance industry to use “clear and open ways to accurately assess the value of a vehicle”.

Car insurance costs in the UK are "skyrocketing" compared to the rest of Europe (PA)

Mr England said the rise in second-hand car values could partly explain the widening gap between payouts and market values. According to the Association of British Insurers (ABI), second-hand cars have surged in price by 28 per cent over the past two years.

However, the ABI said this should not affect the principles of how insurers deal with claims. It said settlement offers reflect a vehicle’s value, taking into account mileage and condition, but insurers can only make an offer based on what they know, so customers are encouraged to provide additional evidence to support their valuation of a vehicle’s value, for example, full service history or low mileage.

Jenny Ross, editor of Which? Money, said: “The payout you receive from your insurance when your car is written off should be the market value of the car before it was stolen or damaged, minus your insurance excess. You can check market value yourself fairly easily by putting your car registration into a car valuation website.

“If you feel your insurer is not offering you enough, you can complain to your insurer and if you remain unhappy with the outcome, you can escalate the complaint to the Financial Ombudsman.”

A high-end car recovered by Essex Police’s Stolen Vehicle Intelligence Unit (PA)

The FCA has been investigating the problem of insurers undervaluing vehicles for more than a year.

Last September, it sent out “Dear CEO letters”, telling insurers it expects them to handle claims promptly and fairly and to consider the impact of inflation when settling claims.

Sheldon Mills, executive director, consumers and competition, at the FCA, said: “We are watching closely and will act quickly to stop firms and prevent harm to consumers where we see it.”

Top three car brands most likely to get devalued payouts

According to an ALA Insurance study

• A BMW driver could be out of pocket by £1,390
• A Mercedes driver could lose out on £1,021 on average
• Land Rover owner could lose £897.

Direct Line has already been ordered to review cases where vehicles were written off between September 2017 and mid-August 2022 to identify anyone given an unfair settlement.

A spokesperson said: “Customers do not need to contact us, either directly or via third parties, as we will contact impacted individuals to apologise and provide appropriate redress, including interest.”

The FTSE 250 firm is also set to pay around £30 million in compensation to customers who were overcharged when they renewed their car or home insurance.

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