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Insurers undervalue wrecked vehicles, ombudsman claims

Damaged car
Image caption The Association of British Insurers said that the used car market fluctuated

Complaints to an ombudsman about motor insurance rose by 29% last year - with key gripes including valuations of written-off vehicles.

There were 7,238 inquiries to the Financial Ombudsman Service in 2011.

The ombudsman has accused some insurance companies of valuing by trade price - the amount a dealer would pay - rather than retail price.

But an insurance trade body said it was a volatile market, and some owners overestimated what their car was worth.

'Annoyed'

Karyn Howes, of Chineham in Hampshire, was one of those drivers who complained.

Last month, the 30-year-old damaged her car at traffic lights after skidding in bad weather. She said she was only going at about 5mph, but there was enough damage done for her insurance company to decide it was not worth repairing the vehicle.

The insurer offered her a payout of just over £2,300, but she thought that was not enough to cover her loss.

"After investigating online I thought the car was worth about £2,700, so I was really annoyed," she said.

Image caption Karyn Howes did not accept the first offer from her insurance company

"You pay your insurance, so you hope to get something decent back if you have an accident."

"I rang up [the insurer] and I had to justify why I thought the first offer was not fair. Eventually I was offered what I thought to be fair, but I think I should have been offered that in the first place."

Replacement value

If a car is written off, an insurance company is supposed to offer a proper payout. That does not mean that a car bought for £5,000 years ago would mean a £5,000 payout now.

However, it should be enough to replace the vehicle with something similar at the time it was written off. In other words, roughly the same in terms of age, condition and mileage.

David Cresswell, of the Financial Ombudsman Service, said that even though the rules were clear, some insurance companies were not following them.

"We uphold about half of complaints [we receive] in favour of the consumer. That is usually because the insurer has used the so-called trade price. That is the price that a dealer would pay," he said.

"That would be hundreds of pounds less than the retail price you would pay on a garage forecourt. This is not really acceptable."

But the Associations of British Insurers (ABI) said policyholders often thought their vehicle was worth more than was actually the case.

"The second-hand car market fluctuates over time. This causes valuations to change - often rapidly - and as the public may not follow the market closely, they can overestimate their own vehicle's replacement value," a spokesman said.

Taking car prices at face value would also be a mistake, the ABI said.

"It should be remembered that the price a vehicle is advertised for sale as is not the same price that someone might pay - second-hand car dealers may overstate the price in a newspaper or trade magazine, but accept much less when negotiating," the spokesman added.

Options for owners

Anyone unhappy with the valuation for their car should argue their case, industry experts suggest.

Matthew Tumbridge, who edits the website usedcarexpert.co.uk, said: "Go online and find a fair price, adjust it for mileage, condition and service history, and then back it up with real cars for sale in your area.

"Then put it all in writing and you should find the insurer should back down."

If your company does not agree, and no compromise can be reached, a complaint can be taken to the Financial Ombudsman Service. It is free and impartial, and can tell an insurer to pay a different amount.

Gap insurance policies are also on the market. These policies should cover the difference between what an owner originally paid for a car, and what it was worth by the time it was damaged or stolen.

Of course, taking out an extra policy means paying out more in insurance premiums.

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